ESTE - Earnings call transcript Q2 2021

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Operator

Good morning and welcome to Earthstone Energy's Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder this conference call is being recorded.

Joining us today from Earthstone, are Robert Anderson, President and Chief Executive Officer; Mark Lumpkin, Executive Vice President and Chief Financial Officer, Steve Collins, Executive Vice President of Operations; and Scott Thelander, Vice President of Finance. Mr. begin. may you Thelander

Scott Thelander

welcome Second and Conference to you, Quarter our Call. Thank

of like get forward-looking you meaning Section the XXE started, Act amended, we Securities XXXX XXXX to Act statements XXA of Securities I the of contain Before and will as would remind amended. as of call that within Exchange the Section of today's

documents call statements and at results GAAP certain earnings Also will Although give no today's conference as note, of can Earthstone's uncertainties reasonable filed of of most includes section expectations, incorrect, prove of be time for the as the telephone any going comparable also management non-GAAP these in information to they the accurate described under can on believes to to be second the certain speaks we yesterday, to in may prove in quarter today A these to by replay. replay contained of webcast website released call measures. XX-K be yesterday. financial in earnings directly replay Investors by section August on statements X, the transcript Investors are Form vary This are of longer our Reconciliations that XXXX. information Should of correct. Thus, available actual December annual any assumptions references website no the or and announcement, financial reading. the these call These via more underlying that time-sensitive XX-Q will this our only one for risks, yesterday based they measure also announcement ended non-GAAP materially. released or our should are may subject measures assumptions recorded Form please These be report year our on in www.earthstoneenergy.com. assurance and we risks found and XXXX. or materialize XX,

announcement Collins, from the how and now our released Robert. some will I'll to from from President our our remarks Operations; access Vice to with call CFO; yesterday. Executive comments Anderson, find those earnings Robert over then Steve turn call begin our in Robert. comments Lumpkin and closing by information we'll have You about Mark can of Today's followed CEO;

Robert Anderson

morning, you been know Scott, days Thank conference and while of join your I us busy we couple quarter call. for time second it's good appreciate our everyone. you a and today XXXX

the Our strategy. strong second continued impact results consolidation quarter positive and our reflect ongoing our momentum of

and completion three drilling activity We all acquisitions this million program for our drilling have G&A. $XXX adding year closed and a even total minimal adding only now of resumed meaningful second while this of a and rig

rate we acquisitions production with production hit to rate, and while expecting the on a trailing EBITDAX. -- impact with only our the increasing daily minimal these that second our well daily should be of program year-end enter outstanding closed nearly double by and acquisitions debt XX% drilling a to share While count closed these year underway, XXXX half by our average

with months free generated million this the XX year. it flow over We have of million $XX in also past $XXX of cash coming

operating our per stock our complementary lower share locations, efficiency from recognized be we that have upside price. financial economic increase while leverage. Through high-quality efforts acquisitions continue will at scale, our liquidity added value helped operating continue expect continue We to drilling improvements our have increase strong we which in to us maintaining to these results, and with assets our

and share per primary value. All continues of be key these increasing mission of Efficiency a management to team. our focus for cost enhance our

ability we to of inventory. schedule are assets ahead they to drilling IRM and our adds and effectively in estimates. these growing this and recently efficiently wells we our initial example, acquired integrate of cost year below our came drilled develop This our January For that the pleased acquisitions on in our in confidence

the know don't much you with year and which significant billion tracker in million XXXX cash -- consisting due second barrels impact drilling in first assets oil XX cap XXXX an value locations the today and increased our billion significant activity barrels barrel approximately conjunction flow and undeveloped, with barrel drilling $X.X a this at flow, full-time reserves prices We total this $XXX the developed addition the we per and of equivalent. further for completing expect production do we if or end efficiencies of and to the and no we at to intend be adjusted expect quite volumes adjusted generated oil doubled away. bringing After of first Considering acquisitions midyear $XX to approximately of XXXX, to proved Proved almost we point, now have of forward $XX budget continue of quarter, of higher we Tracker to to giving XX.X year. second so enhance flow XX And continue commodity of cash compared this from free We approximately resulting the million with will We combined first production flow rig numbers prices a year. half. prices approximately adjusting proved of internal in -- second strip closed of day, $XXX reserves of proved the more the cash having from in developed of the production cash free review flat our to BOE end had second XXXX credit while see and the day have equivalent year. per value $XX positive we achievement million million rig up and half PV-XX oil EBITDAX up between is reserves from as using with of now rig, acquisition, any unit almost XXXX of As million at the the capital additional three XX,XXX $X.X achieving, by drilling add volumes million cost BOE than have million will our our And yet July generate proved our with BOE. a to first an XXX.X half acquisitions recently on and of BOE estimate in Compare the in the increased to impact and for in our the reserves PV-XX production to XXXX. look Xst these million. per the per cost are market lower of in structure. higher second that developed work half scale quarter the that XXXXX the this EBITDAX

turn operations. I'll to provide the an Now update call on over Steve, to

Steve Collins

Thanks Robert and good morning everyone.

in Midland comprised of quarter the have laterals, XX% During of short three-well a we second a which County, pad interest. working we completed

Pearl We the where also interest. company's recently County, we XX% drilled The in four Midland a acreage. wells on Pearl wells short Jam have drilled the laterals, working the acquired are also IRM Jam pad on wells first

mentioned, are West have pleased went. drilling at with we these That our operations Western where very pad County unit, are As how a on we rig Reagan in Heartgrove smoothly Robert four-well is now team in working hiatus, nearly back XX% has we to excited rig one-year and after running to Having a and wells. March, picked hit be drilling our completing interest. the ground up a

on year. full about a the wells do in we we to Upton second and in completion deployed mentioned, forward, rig, late the going Robert five-well particularly, once rig completing had which a having a second placed begin with expect just the County We're we As pad. excited schedule drilling drilled which we

have So wells the we our having far, and are and began pleased recently assets pleased IRM fully integrating, those assets. operations We very week. first drilled on completions our particularly this on with operations to pad drilling completion are those

to well of the an on the a this this around over as Due Jam Pearl on gross week laterals. on operations towards was XX factors, start Tracker We schedule culture, -- to have our I process properties combination Midland Earthstone of we initiating have feet. completion year operations of Tracker pad. The at are we'll weighted to average implementing is assets. the taken expect completed this the the out X,XXX wells short bring lateral length year heavily completion as

heavily more While rock to weighted expect X,XXX The efficiency half average to weighted The X,XXX for in with really foot weighted lateral expect spud more the well a program. we longer has to of to length completed decreased us feet. have are this back year with laterals. to these economics, longer the shorter that attractive This doubt, lateral up laterals we no average is year. closer wells with capital XX expected there average next much lateral be length when sets the good wells year, laterals are will

Let to address me take moment cost inflation. a just

as in included our some of operations areas increases upward have We for and chemicals pressure, frac had the trucking. increases in of steel We all for such cost items these and casing, on costs updated some guidance. like, capital prices items range of

are less, We these prices since is completing. stage up are approximately year. increases frac while with on cost efficiency to and from up hard XX%, Steel days gains the per offset working drilling the and locations, XX%, beginning our of

areas, only We increases to in $XX the out prices expect have here. expect minor as And range. level in other stabilized these costs oil

existing operating seen lease experience have operations. our we on our of expenses, implement best from in based We procedures, some as our savings practices

in fuel these prices. in Again, over However, assets, Mark. in new offset we costs. order do efficiencies we continue will to higher I'll increases With to additional and to target turn it see that, trucking

Mark Lumpkin

Thank you, Steve.

we'll with for usual, sheet details and then, And recap other we'll financial go liquidity quarter. the balance start position. into some a As financial of the side with

new to of know, of especially be to revolving As further $XXX opportunities of as strong operations remain of the acquisition advantage Tracker scale and our our increased you credit take key increase Once facility in closing on to $XXX from the maintaining for million. we the focus poised the liquidity base borrowing continues million us, world. XXth, July a A&D the

the $XXX.X for of million. as $X.X borrowing a closing of acquisition at million, in outstanding cash had debt Adjusting and balance of would quarter in and debt an facility end, of cash on million balance we Tracker a $X.X have XXth, cash the million the the Looking borrowing had with June is of we million estimated balance balance base debt base $XXX undrawn under July, base. borrowing million. a XX% total the liquidity a credit just of $XXX outstanding $XXX had On $XXX of new million of which million we facility with about under our long-term near basis, in base capacity and below $X.X borrowing little that and cash, million of availability adjusted the credit $XXX

we a cash first when $XX million over quarter, free year. half second first combined brings $XX.X generated in little of with million cash in to of $XX.X generated the of million the the the free quarter, we flow For the which us flow

times flow XXXX. cash total the half having be the in year. XXXX, cash cash while of we leverage on impact of utilize goal to Further, XXXX, achieve second the flow free fully generating Tracker of of leverage, expectation expect to first debt free acquisitions. below our to in all the X.X targeted will which the below prior debt. times. see adjustments utilizing debt levels, our is significant free to We we our half way pay continue flow that for reduce we continue our X.XX expect the to year-end to annualized to year-end growth well EBITDAX year, adjusted by was including one-time with to at production are believe, And down we'll of We Through

fits second totaled expenditures range our recently Based and quarter, of $XX.X of wells to capital sales, $XX.X two million $XXX the operated to accrued gross our bringing revised million. rigs balance the for year-to-date at running to XXXX million. turning capital in year the XX acquisitions, on a budget expenditures million $XXX capital Excluding

As I that, And Steve the our million some mentioned, at you, is can inflation. they we cost room imply, of for maximizing efficiencies. second that do assure cost -- then, operating half team have CapEx $XXX And on laser-focused midpoint.

of second Now million of Revenues the From volumes controlling oil, with XX% equivalent quarter starting sales revenues. $XX.X XX% lipids. for XXXX which record of achieved XX% financial top the looking oil a at approximately of were barrels with the per XX% natural of gas we oil line. gas, were comprised quarter quarter and XXXXX the production second the in metrics and natural standpoint, day

barrel prices moving $XX.XX per quarter, after oil barrel to for hedges per over $XX.XX before second Now oil commodity were hedges. the prices realized and our of for

a gas hedge. total we and For after per $XX.XX BOE post price and after or on to for us Mcf hedges. liquids, hedges so have before gas natural we same before and hedges per our any $XX.XX That brings hedges. $X.XX natural realized hedges natural don't pre gas, that's $X.XX realized equivalent $XX.XX we the And liquids, realized barrel of

environment, acquisitions in we us position enjoyed critical part our but us this risk hedging not hedging commodity settlement and a hedge really to And key painful rising management make we've the while and year, writing is consistent our in strategy. our to price checks on it's and a course, discipline Tracker Of of able strategy be benefited XXXX have greatly in XXXX. IRM was been

a oil expense barrel cash per transportation per $XX.XX and costs, quarter, for down at which unit was cash second equivalent our of expense includes interest in and quarter. which gathering, LOE, production side, in first on On all-in the the the costs, severance oil per $XX.XX basis, tax, G&A came barrel of equivalent processing, from

oil per have to guidance we significantly the equivalent guidance of was operating $X.XX of expense for range $X lease lower per compared to in barrel our had is provided. revised a the And $X.XX second as you barrel half LOE $X.XX range to a than equivalent, of have which downward quarter. first previously BOE, seen, we range in oil Our per

the to first $X.XX $X.XX barrel per side, of expense cash oil barrel quarter, oil the adjusted and compares On our G&A the expense in per million administrative second equivalent $X.X which was or equivalent in quarter. general

of an net achieve million BOE we derivative and GAAP cash Our seeking continued in which in was which us ago just of $XX.X plus cash $X.XX standpoint, quarter. per in reported million our just first for costs came has under loss $XX per a million quarter a per G&A LOE on of the From the unrealized while BOE It or the our were maintaining to $X losses came income cost that relatively we share, growth in in below second improve flat we structure. allowed not continually under production, long $X that to half, contracts. loss of included second combined G&A, $XX.X

as of net a EBITDAX in turn $X.XX XX% unrealized quarter, Robert $XX.X or excludes Our And $XX.X in back per approximately impact said, reported second profit we for first Robert the which the which comments. from quarter. of I'll strong income, second million it was adjusted the up derivatives over diluted With very to the share of closing million quarter. was that,

Robert Anderson

Thanks, Mark.

through our accretive so priority of position seen acquisitions. scale number balance strategy growth value our of shareholders highly ability this having meaningful closed for our managed Our with deals, high-quality on sheet. Capturing and deals on strong our representative these $XXX the operating to remains financial year by to one be half first statistics our far and of as year our execute million attractive our our the is increase by conservatively can using

effectively additional consolidation asset continually in attractive seeking ability further acquisitions. integrate targets are are to and We confident our

our to and have clean these while balance We maintaining hard accretive worked will sheet. operations, valuable throughout cost strong we strength scale pursue the to and to opportunities our continue balance maintain of consolidation that add sheet acquisitions our recent structure

few take glad Now, all operator, to be that, questions. a we'll with

Operator

conducting Partners. this be At Instructions] Campbell comes Our we [Operator you. time, proceed question. with question-and-answer with a Thank Please question your Alliance session. Jeffrey from first Global will

Jeffrey Campbell

you and My regarding Thank is question afternoon. cost first good inflation.

all-in forecasted XXXX. changed XX provided frac costs Your actually slide on on five slide since haven't guidance

though it's that even appears your that forecasted cost today, within prior you correct? range. Is inflation So still highlighted some it

Robert Anderson

little in stabilized. and a bit year from had We beginning there of the the Jeffrey. same, the stays have all That Yes. of pushing things

now of we the any year. increases the don't So end major that we hope see between and

Jeffrey Campbell

bit the and could with wells currently if that add Okay, of great. location of generating second a you. I regarding you're rig. completions Thank color the you little was wondering the

Robert Anderson

we other Benedum the wells that sitting It's the offsetting in and earlier completed Ratliff year, County right in to area. next some Upton

right county at So line Reagan and it's line. between the Upton County

So right area. it's second that's running in And the rock our where really good is high-quality now. rig

Jeffrey Campbell

your that expand Okay. options I'll that on you intend And one to could additional if regard. what just ask that in add I you the wondered you scale. are last noted is,

Robert Anderson

pretty up, prices so are for currently lots a market feeling of A&D it's reasons. pretty Well, Oil are active good. sellers

-- think happened about take now. are last I the advantage the right forget trying Although, market people But maybe where of week. is and in what's to

the And on of there's lots market. so, deals

high look And future to so, optionality choose and gives busy. us really are it of our what kind and our And deal pick just for flow I at is teams of makes sense pretty think opportunities and us.

lot So proven long different a we we team of Steve feel this a lot a years have -- we've can and assets. done through like integrate deals. and our of number

management can this So one a effectively more we assets each and to we is integrate each but under team. different, little deal, think manage continue

try to continue opportunities we because nice continue beating I think make us we're will a to going build as So and investors, grow, keep that's business. really find to to what bushes the and to attractive

Jeffrey Campbell

follow-up as And to that. quick a just

hog So the I want whole to here. thing just

a focused Ford some did consolidation look more Eagle at there recently. the Eagle on would or Midland really and you still recently opportunities, You for are that place Is deal point? you this a on Ford the there's been

Robert Anderson

our companies Midland And assets. who still companies me, first public Eagle look has deals to having But some looking in if is having well think or great a weren't call play that who easier sell monetize a the as are to the consolidation. love there we'll in Midland I looking and larger the similar excuse a been versus it. basin. of focus Basin us footprint makes at operating We and there it Ford to for are – there's as we private team area to lot

if want we it makes to participate sense. So

Jeffrey Campbell

the for it. I Great. Thanks. Thanks appreciate color. all

Robert Anderson

bet. You

Operator

you. Thank

Our Neal comes from Please with next question. proceed Truist. your question with Dingmann

Neal Dingmann

about out year. mention, deals going few I to guys going just I'm are accretive a you keep because was I cranking a And guys. going you, not ask now assume to to by morning M&A Good only

me -- let things right over capital about turn rig talked discipline. the two cost. let low instead to year just wondering I'm the given next So Robert you've program

hedges even quarterly obviously, don't drop I start these could out continue million And free I a speak your have if cranking bit. we by know guys off think, Could prices generate could even to flow. that versus $XX thoughts on the incredibly over my always free math growth shares potentially solid more cash you capital cheap -- cash not I'm asset your whether I sense for value. -- does there flow, buyback make more might fan to share to it redeploying a your say or this seem even you

get I'm going that things what time potentially such if just wondering you thought? next once your So to year is again, are as

Robert Anderson

Yes. We and should to consider to whether of scale. is kind getting time consider shareholder continue use below to well And paying cash continuing down all outside we and know foremost debt this Neal build as scale. I think first you us, of flow one for build leverage return some or

billion I think number is don't it, cap. the market sub -- what right $X billion $X I or know

getting this You continue which think have business and value, to all build is leverage, for billion options lots I attract what that of a stock profile our it's shareholder if of low-cost at about. plus $X liquidity with same limited of bigger. low investors create will having can good kind structure, company and we And investors a into and new this

the would that's putting would first consider think, I excess it, year where next cash not place we consider flow. So, free we but

Neal Dingmann

Yes. Absolutely.

for philosophy, your back balance again it is was continue such. course, I be, what just second think thinking mean -- to makes things very, go continues total hedging of then conservative. even year next very if your Mark, kind sense. mean maybe on to sheet I more of, to for about -- I as And my I

some you are as hedges wondering some you you've again companies stay like would puts more less you in highly or the year consider leaving past? callers know larger of next even Would consider So just maybe would go I doing, to I'm the just if had as hedges? roll-off, hedged

Robert Anderson

and Well, bit. can first chime let in then a me stab you take the little Mark

obligations and have overhead. not mitigation. going disciplined just do. hedging we're regular program view program We're historically be at balance on we're lower forecast we're be with good we're capital some capital it could also protecting going to prices, First right? to about number environment. a same of and less going sheet, level that we've our But to that have all, And but or and we're XX% doing like We're risk our to debt some a and bullish had all oil going time, than the prices, to

So mean to I let going acquisitions PDP around Mark, hedge around sorry, hedges definitely want value. -- some we're I'll to expand. you

Mark Lumpkin

got it. That's you I think great.

Neal Dingmann

Glad to hear.

way again. for think its that forward. going that’s Rob what I Nice you Thank quarter. worth, hand

Robert Anderson

Neal. Thanks,

Operator

Thank you.

proceed question your with Markets. question. comes RBC Scott Hanold Our Capital from with Please next

Scott Hanold

Is little Thanks. expect be once, on wells? those If you it you that to could Yes. Could us a a color, said the or back to And pad. you like second when do interest was rig I going give you we be to pivot or that and five-well it more remind those could think all turn in? at staggered? working will wells us on bit

Robert Anderson

our Well will five-well And how is late it And them operations you don't early get But -- wouldn't them and at days it right be like bring one-time until the online. all bring at they five-well they mentioned. at we'll Scott? on over staggered it's is at all pad a one-time, continuous all couple over frac or we typically fracking now and year. plan say until on. come This about them is And when So that, this once. on started continuously pad. a I all next so they I one-time come a think of until year

Scott Hanold

those? in And on for just Yes. -- the lateral lengths

Mark Lumpkin

Yes. to Scott add.. just

Robert Anderson

ahead Mark. Go

Mark Lumpkin

just brought say interest. are three-wells. that would a sizes XXX% June. four-wells was just in something I And generally Those on speaking late That working average XX,XXX-foot our looking at Yes. and laterals pad program we our is

rest completions this year pads. we are I all four-well have think of the the actually

short are the first And all deployed. the all rig laterals. from existing Robert are we actually As those or those mentioned

December. September the mid So longer year lot we've of we as And then we've to to a short get length. got year get second from average really late outlined half XX into bring we in laterals should next to probably lateral once we the online that

length versus this with laterals. X,XXX I X,XXX think weighting feet. we're year lateral not than year towards much We're more the average like short heavy foot next higher the

So forward impact that from of see to efficiency capital nice that. it will we're to a looking be standpoint certainly the and

Scott Hanold

Yes.

X-well year. presumably December year. coming coming then working so those lateral obviously September, mean in next of should a present this pads fair XXXXX mean And interest early it? And I I pad opportunity that XXXX. production with on that good that X-well see uplift a probably pretty Is in some foot XXX% XQ a in pad big to way to think about

Robert Anderson

I Tracker add just we when the a we start. think that's just in close terms bit Also weeks it's of second And announced obviously a the stair-step day a updated ago we fair a to quarter. half, a BOE over the the -- out of for XXXXX of a put deal. are couple of bit guidance in second

really doesn't tracker. have If at the all. of to in there's if third way quarter what hit completion quarter that the guidance point quarter second sort activity not full will in the third take a half of is And our much your you of

XQ laterals. bit you long early to of as XQ next bringing And on a year start So, particularly it's we stair-step say, fair XQ. get a to from to some

step see it in would You XQ. change, maybe another upward

Scott Hanold

probably to that -- feels I a day. like I push thinking Is XX of am excess going mean about that in it's it right? Yes.

Robert Anderson

would XX% between probably may half get a wells guidance ballpark. second XQ bring not it below it well from standpoint that oiler. a oil say on XQ be in different -- I even for the and to just the little should is But of we year. just also we XQ. as does that content That's Yes, our link

kind XX% in of over when start content online So, pads getting do oil especially back coming expect year. multiple we next to we get the

Scott Hanold

little more? seeing ask nice mean No push generally to there, been accretive to on right sellers It's to And Okay. fairly it's do M&A. a now? what year. a a bit out that I'll great. you price in find the Can are with then And obviously bit a I are robust continue trying market little transactions next out conversations? you that start sounds there be but you

Robert Anderson

so. hope We

cost moderated seeing you're now think kind being that upside instances is of and value. I service inflation with in prices ascribed certain improved

look certain sense deals capital for then we're have out and to how to And I makes to prices. certain on competitive that's where our in for little really have price see that upside. inventory. got process, to that and and But And find fits compete it will sellers push makes inventory. ability And into so, inventory. having think whether going push something can the to whether at soon good good the and be a pay to figure you upside it inventory bit we got based They've if we've And areas the sense. we that our a

Scott Hanold

you. Thank

Operator

Global Partners. with your question question. next Our Campbell Please Alliance is a follow-up with proceed from Jeffrey

Jeffrey Campbell

the get kind probably XXXX? have continue the at And some continue there to that And any have Are Yes. just of Thanks it commodity me X-rig is up ask we might of was but program we the to obvious, environment in now? point back. during some I it's a things anyway. on a asking if Scott following letting -- third you planning for we rig year, supportive possibility should

Robert Anderson

the that. for We're rig. me got we hey third a have at want if rig can to X-rig But just does definitely I planning all to We've program Steve rig We point, running. program. a and sensitivities and this go you kill probably said, contemplated will run the like second I look what three imagine

like then on rust out how second circumstances working of is next in probably we the year. to our going with So based two just it the out the program consider we'll get efficiency did rigs We'll and see one two running. rigs rig getting and

Jeffrey Campbell

Okay. Thanks.

Operator

remarks. over end and call session and closing for [Operator reached Robert will Instructions] turn the gentlemen we question-and-answer have I the to Ladies of now the Anderson

Robert Anderson

everybody the us joining we to discussion day. continuing good today I next look forward you appreciate and with Have a quarter.

Operator

This participation your Thank at have lines concludes this a day. may and for you you time. conference wonderful and today's your disconnect

Earthstone Energy (ESTE) 8 Aug 212021 Q2 Earnings call transcript