Earthstone Energy (ESTE) Update - Mar 17
Posted: Tue Mar 17, 2020 5:25 pm
Earthstone Provides Updated 2020 Capital Plan and Guidance
Capital Expenditures Reduced by 67%
The Woodlands, Texas, March 17, 2020 – Earthstone Energy, Inc. (NYSE: ESTE) (“Earthstone”, the
“Company”, “our” or “we”), today provided an update to its 2020 operating plan and guidance based on the
recent dramatic drop in oil prices.
2020 Updated Guidance
With the recent drop in oil prices, the Company plans to run one rig into the second quarter of 2020 and operated completion activity will be limited to three wells currently in progress. This reduction in activity will result in an adjusted capital budget for 2020 of $50 – $60 million.
Along with non-operated completions, all brought online in the first quarter, our adjusted budget would result in bringing 3 gross / 3.0 net operated wells and 3.1 net non-operated wells online in 2020. We would also have 11 gross / 9.7 net operated wells drilled and waiting on completion. With a reduction in projected capital expenditures and fewer new wells coming online, we would expect lease operating expenses on a per Boe basis to increase modestly. A portion of this increase would also result from acceleration of certain remedial well work which, to a limited extent, would offset expected production declines.
Based on this adjusted 2020 operating plan, existing service costs and an assumed $30/Bbl WTI oil price, the Company expects to generate free cash flow, beginning in the second quarter of 2020. Free cash flow would be utilized to reduce borrowings currently outstanding under our revolving credit facility.
Management Comments
Robert J. Anderson, President of Earthstone, stated, “With the recent and very dramatic drop in oil prices, we
have taken action to reduce our capital program swiftly. We are in an enviable position with no long-term
contracts, low leverage, and very strong hedge position, which affords us the flexibility to adjust our capital
plan quickly with no adverse impact on our balance sheet or current financial position.”
Mr. Anderson commented further, “This revised plan will allow the Company to generate free cash flow in the
second quarter of 2020, without the assumption of any reductions in other operating costs. We expect to
reduce our debt throughout the year and expect to end the year with net debt to Adjusted EBITDAX
significantly lower than our year-end 2019 level of 1.1x. Even with a 67% reduction to our prior 2020 capital
program, our reduced capital budget still provides for about a 6% increase in estimated production over 2019.
Should oil prices improve in the near-term, we have the flexibility to maintain the rig longer and could quickly
ramp up production with the eleven wells we have waiting on completion.”
Hedge Position Update
The Company restructured certain of its oil swaps to add protection to its 2021 cash flows by adding 1,000 Bopd of WTI swaps in 2021 at $55.65 per Bbl. Simultaneously, the Company reduced 2020 hedge volumes from 8,000 Bopd to 7,000 Bopd beginning in March 2020. All aforementioned hedges are fixed price swaps that afford the maximum downside protection. After adjusting for these changes, our oil swap position for the full year of 2020 is 7,164 Bopd, hedged at a WTI price of $60.99/Bbl, which is approximately 81% of the midpoint of our estimated oil production guidance.
Capital Expenditures Reduced by 67%
The Woodlands, Texas, March 17, 2020 – Earthstone Energy, Inc. (NYSE: ESTE) (“Earthstone”, the
“Company”, “our” or “we”), today provided an update to its 2020 operating plan and guidance based on the
recent dramatic drop in oil prices.
2020 Updated Guidance
With the recent drop in oil prices, the Company plans to run one rig into the second quarter of 2020 and operated completion activity will be limited to three wells currently in progress. This reduction in activity will result in an adjusted capital budget for 2020 of $50 – $60 million.
Along with non-operated completions, all brought online in the first quarter, our adjusted budget would result in bringing 3 gross / 3.0 net operated wells and 3.1 net non-operated wells online in 2020. We would also have 11 gross / 9.7 net operated wells drilled and waiting on completion. With a reduction in projected capital expenditures and fewer new wells coming online, we would expect lease operating expenses on a per Boe basis to increase modestly. A portion of this increase would also result from acceleration of certain remedial well work which, to a limited extent, would offset expected production declines.
Based on this adjusted 2020 operating plan, existing service costs and an assumed $30/Bbl WTI oil price, the Company expects to generate free cash flow, beginning in the second quarter of 2020. Free cash flow would be utilized to reduce borrowings currently outstanding under our revolving credit facility.
Management Comments
Robert J. Anderson, President of Earthstone, stated, “With the recent and very dramatic drop in oil prices, we
have taken action to reduce our capital program swiftly. We are in an enviable position with no long-term
contracts, low leverage, and very strong hedge position, which affords us the flexibility to adjust our capital
plan quickly with no adverse impact on our balance sheet or current financial position.”
Mr. Anderson commented further, “This revised plan will allow the Company to generate free cash flow in the
second quarter of 2020, without the assumption of any reductions in other operating costs. We expect to
reduce our debt throughout the year and expect to end the year with net debt to Adjusted EBITDAX
significantly lower than our year-end 2019 level of 1.1x. Even with a 67% reduction to our prior 2020 capital
program, our reduced capital budget still provides for about a 6% increase in estimated production over 2019.
Should oil prices improve in the near-term, we have the flexibility to maintain the rig longer and could quickly
ramp up production with the eleven wells we have waiting on completion.”
Hedge Position Update
The Company restructured certain of its oil swaps to add protection to its 2021 cash flows by adding 1,000 Bopd of WTI swaps in 2021 at $55.65 per Bbl. Simultaneously, the Company reduced 2020 hedge volumes from 8,000 Bopd to 7,000 Bopd beginning in March 2020. All aforementioned hedges are fixed price swaps that afford the maximum downside protection. After adjusting for these changes, our oil swap position for the full year of 2020 is 7,164 Bopd, hedged at a WTI price of $60.99/Bbl, which is approximately 81% of the midpoint of our estimated oil production guidance.