0000010254False00000102542023-10-312023-10-31

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
FORM 8-K 
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report: October 31, 2023
(Date of earliest event reported)
logoa16.jpg 
EARTHSTONE ENERGY, INC.
(Exact name of registrant as specified in its charter)
 
Delaware 001-35049 84-0592823
(State or other jurisdiction of incorporation) (Commission File Number) (IRS Employer Identification No.)
1400 Woodloch Forest Drive, Suite 300
The Woodlands, Texas 77380
(Address of principal executive offices) (Zip Code)
(281) 298-4246
(Registrant’s telephone number, including area code)
(Former name or former address, if changed since last report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
 
☐
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
☐
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
☐
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
☐
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, $0.001 par value per shareESTENew York Stock Exchange
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ☐


If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐



Item 2.02 Results of Operations and Financial Condition.
 
On October 31, 2023, Earthstone Energy, Inc. (the “Company”) issued a press release announcing its financial and operating results for the three and nine months ended September 30, 2023. A copy of the press release is furnished herewith as Exhibit 99.1.

The information in this Current Report on Form 8-K furnished pursuant to Item 2.02, including Exhibit 99.1, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to liability under that section, and they shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended (the “Securities Act”), or the Exchange Act, except as shall be expressly set forth by specific reference in such filing.

Item 9.01 Financial Statements and Exhibits.
(d) Exhibits.
The following exhibits are included with this Current Report on Form 8-K:
Exhibit No. Description
99.1  
104 Cover Page Interactive Data File (embedded within the Inline XBRL document).



SIGNATURE

    Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
 EARTHSTONE ENERGY, INC.
   
Date:November 1, 2023By:/s/ Tony Oviedo
  Tony Oviedo
  Executive Vice President - Accounting and Administration




Exhibit 99.1
estelogo_image1a19.jpg
Earthstone Energy, Inc. Reports
2023 Third Quarter and Year-to-Date Financial Results

The Woodlands, Texas, October 31, 2023 – Earthstone Energy, Inc. (NYSE: ESTE) (“Earthstone”, the “Company”, “we”, “our” or “us”), today announced financial and operating results for the three and nine months ended September 30, 2023.

Permian Resources Merger Agreement

On October 30, 2023, at the special meeting of stockholders of Earthstone, the stockholders of Earthstone approved the previously disclosed merger agreement with Permian Resources Corporation and the transactions contemplated thereby (the “Merger Agreement”), among other proposals. The parties to the Merger Agreement expect the Mergers to close on or about November 1, 2023, subject to other customary closing conditions.

Third Quarter 2023 Highlights
•Closed the Novo Acquisition on August 15, 2023
•Average daily production of 116,967 Boepd(1)
•Net income(2) of $87.2 million, and Adjusted Net Income(3) of $106.2 million
•Adjusted EBITDAX(3) of $302.3 million
•Net cash provided by operating activities of $285.1 million
•Free Cash Flow(3) of $76.1 million
•Capital expenditures of $191.7 million
Year to Date 2023 Highlights
•Average daily production of 109,016 Boepd(1)
•Net income(2) of $255.8 million, and Adjusted Net Income(3) of $291.0 million
•Adjusted EBITDAX(3) of $808.0 million
•Net cash provided by operating activities of $761.9 million
•Free Cash Flow(3) of $159.8 million
•Capital expenditures of $568.4 million
(1)Represents reported sales volumes.
(2)Net income (GAAP) represents the sum of Net Income attributable to Earthstone Energy, Inc., plus the Net income attributable to noncontrolling interest. The related consolidated weighted average shares outstanding of Class A Common Stock and Class B Common Stock were 142.5 million shares and 142.0 million shares, respectively, on an as-converted basis, for the three and nine months ended September 30, 2023 (“Adjusted Diluted Shares”, as reconciled in the “Non-GAAP Financial Measures” section below). All shares of our Class B Common Stock issued and outstanding are held by the noncontrolling interest group.
(3)See “Non-GAAP Financial Measures” section below.


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Selected Financial Data (unaudited)
Three Months Ended September 30,Nine Months Ended September 30,
($000s except where noted)2023202220232022
Total revenues$475,816 $531,495 $1,258,960 $1,200,196 
Lease operating expense101,156 75,829 276,736 147,974 
General and administrative expense (excluding stock-based compensation)11,984 10,866 37,102 25,459 
Stock-based compensation14,524 3,322 26,977 15,112 
General and administrative expense$26,508 $14,188 $64,079 $40,571 
Net income$87,151 $299,312 $255,810 $465,460 
Less: Net income attributable to noncontrolling interest25,793 87,856 75,862 142,597 
Net income attributable to Earthstone Energy, Inc.61,358 211,456 179,948 322,863 
Adjusted EBITDAX(1)
$302,276 $345,792 $808,024 $769,756 
Production(2):
Oil (MBbls)4,435 3,566 12,602 7,569 
Gas (MMcf)20,433 16,514 55,551 36,567 
NGL (MBbls)2,920 2,360 7,900 5,229 
Total (MBoe)(3)
10,761 8,678 29,761 18,892 
Average Daily Production (Boepd)116,967 94,329 109,016 69,203 
Average Prices:
Oil ($/Bbl)82.65 93.12 77.68 99.93 
Gas ($/Mcf)1.92 6.90 1.62 6.37 
NGL ($/Bbl)23.96 36.23 24.06 40.31 
Total ($/Boe)44.22 61.24 42.30 63.53 
Adj. for Realized Derivatives Settlements:
Oil ($/Bbl)80.37 83.75 76.38 83.44 
Gas ($/Mcf)1.34 5.36 1.38 5.15 
NGL ($/Bbl)23.96 36.23 24.06 40.31 
Total ($/Boe)42.17 54.45 41.31 54.54 
Operating Margin per Boe
Average realized price$44.22 $61.24 $42.30 $63.53 
Lease operating expense9.40 8.74 9.30 7.83 
Production and ad valorem taxes3.57 4.63 3.47 4.64 
Operating margin per Boe(1)
31.25 47.87 29.53 51.06 
Realized hedge settlements(2.05)(6.79)(0.99)(8.99)
Operating margin per Boe (including Realized Hedge Settlements)(1)
$29.20 $41.08 $28.54 $42.07 
(1)See the “Non-GAAP Financial Measures” section below.
(2)Represents reported sales volumes.
(3)Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equals one barrel of oil equivalent (Boe).

Recent Eagle Ford Basin Non-Core Assets Sale

Earthstone recently agreed to sell certain non-core assets located in Karnes and Gonzales counties of Texas on approximately 2,800 net acres for a purchase price of $66.5 million. For the third quarter of 2023, production was approximately 1,160 Boepd (83% oil). The transaction is expected to close late in the fourth quarter of 2023.
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Liquidity and Equity Capitalization

As of September 30, 2023, we had $16.6 million of cash on hand and $700.4 million outstanding under our senior secured credit facility (“Credit Facility”). As of September 30, 2023, elected commitments under the Credit Facility were $1.75 billion with a borrowing base of $2.0 billion.

As of September 30, 2023, 106,443,591 shares of Class A Common Stock and 34,257,641 shares of Class B Common Stock were outstanding, resulting in 140,701,232 combined shares of common stock outstanding.

Commodity Hedging

Hedging Activities

The following tables set forth our outstanding derivative contracts as of September 30, 2023. When aggregating multiple contracts, the weighted average contract price is disclosed.
 Price Swaps
PeriodCommodityVolume
(Bbls / MMBtu)		Weighted Average Price
($/Bbl / $/MMBtu)
Q4 2023Crude Oil653,200 $74.25
Q1 - Q4 2024Crude Oil1,719,600 $76.28
Q4 2023Crude Oil Basis Swap (1)2,346,000 $0.92
Q4 2023Natural Gas1,150,000 $3.35
Q4 2023Natural Gas Basis Swap (2)12,880,000 $(1.67)
Q1 - Q4 2024Natural Gas Basis Swap (2)36,600,000 $(1.05)
Q1 - Q4 2025Natural Gas Basis Swap (2)14,600,000 $(0.74)
(1)The basis differential price is between WTI Midland Crude and the WTI NYMEX.
(2)The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.
 Costless Collars
PeriodCommodityVolume
(Bbls / MMBtu)		Bought Floor
($/Bbl / $/MMBtu)		Sold Ceiling
($/Bbl / $/MMBtu)
Q4 2023Crude Oil Costless Collar1,122,400 $62.58$84.84
Q1 - Q4 2024Crude Oil Costless Collar732,000 $60.00$76.01
Q4 2023Natural Gas Costless Collar7,090,400 $3.00$4.91
Q1 - Q4 2024Natural Gas Costless Collar14,640,000 $2.56$4.51
 Deferred Premium Puts
PeriodCommodityVolume
(Bbls / MMBtu)		$/Bbl (Put Price)$/Bbl (Net of Premium)
Q4 2023Crude Oil395,600 $70.00$64.54
Q1 - Q4 2024Crude Oil915,000 $65.00$60.04

About Earthstone Energy, Inc.

Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in acquisitions and the development and operation of oil and natural gas properties. Its primary assets are located in the Permian Basin of New Mexico and west Texas. Earthstone's Class A Common Stock is listed on the New York Stock Exchange under the symbol “ESTE.” For more information, visit Earthstone’s website at www.earthstoneenergy.com.

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Forward-Looking Statements

The foregoing contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of historical fact, included in this communication that address activities, events or developments that Permian Resources or Earthstone expects, believes or anticipates will or may occur in the future are forward-looking statements. Words such as “estimate,” “project,” “predict,” “believe,” “expect,” “anticipate,” “potential,” “create,” “intend,” “could,” “may,” “foresee,” “plan,” “will,” “guidance,” “look,” “outlook,” “goal,” “future,” “assume,” “forecast,” “build,” “focus,” “work,” “continue” or the negative of such terms or other variations thereof and words and terms of similar substance used in connection with any discussion of future plans, actions, or events identify forward-looking statements. However, the absence of these words does not mean that the statements are not forward-looking. These forward-looking statements include, but are not limited to, statements regarding the Company's pending merger with Permian Resources Corporation (the "Transaction"), pro forma descriptions of the combined company and its operations, integration and transition plans, synergies, opportunities and anticipated future performance. There are a number of risks and uncertainties that could cause actual results to differ materially from the forward-looking statements included in this press release. These include the expected timing and likelihood of completion of the Transaction, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals of the Transaction that could reduce anticipated benefits or cause the parties to abandon the Transaction, the ability to successfully integrate the businesses, the occurrence of any event, change or other circumstances that could give rise to the termination of the merger agreement, the risk that the parties may not be able to satisfy the conditions to the Transaction in a timely manner or at all, risks related to disruption of management time from ongoing business operations due to the Transaction, the risk that any announcements relating to the Transaction could have adverse effects on the market price of Permian Resources’ common stock or Earthstone’s common stock, the risk that the Transaction and its announcement could have an adverse effect on the ability of Permian Resources and Earthstone to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally, the risk the pending Transaction could distract management of both entities and they will incur substantial costs, the risk that problems may arise in successfully integrating the businesses of the companies, which may result in the combined company not operating as effectively and efficiently as expected, the risk that the combined company may be unable to achieve synergies or it may take longer than expected to achieve those synergies and other important factors that could cause actual results to differ materially from those projected. All such factors are difficult to predict and are beyond Permian Resources’ or Earthstone’s control, including those detailed in Permian Resources’ annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K that are available on its website at https://www.permianres.com and on the SEC’s website at http://www.sec.gov, and those detailed in Earthstone’s annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K that are available on Earthstone’s website at https://www.earthstoneenergy.com and on the SEC’s website at http://www.sec.gov. All forward-looking statements are based on assumptions that Permian Resources or Earthstone believe to be reasonable but that may not prove to be accurate. Any forward-looking statement speaks only as of the date on which such statement is made, and Permian Resources and Earthstone undertake no obligation to correct or update any forward-looking statement, whether as a result of new information, future events or otherwise, except as required by applicable law. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof.

Contact

Clay Jeansonne
Investor Relations
Earthstone Energy, Inc.
1400 Woodloch Forest Drive, Suite 300
The Woodlands, TX 77380
713-379-3080
cjeansonne@earthstoneenergy.com
4

EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands, except share and per share amounts)
 September 30,December 31,
ASSETS20232022
Current assets:  
Cash and cash equivalents$16,592 $— 
Accounts receivable:
Oil, natural gas, and natural gas liquids revenues177,353 161,531 
Joint interest billings and other, net of allowance of $19 and $19 at September 30, 2023 and December 31, 2022, respectively
32,574 34,549 
Derivative asset1,542 31,331 
Prepaid expenses and other current assets40,323 18,854 
Total current assets268,384 246,265 
Oil and gas properties, successful efforts method:
Proved properties5,488,844 3,987,901 
Unproved properties305,706 282,589 
Land6,338 5,482 
Total oil and gas properties5,800,888 4,275,972 
Accumulated depreciation, depletion and amortization(955,434)(619,196)
Net oil and gas properties4,845,454 3,656,776 
Other noncurrent assets:
Office and other equipment, net of accumulated depreciation of $6,601 and $5,273 at September 30, 2023 and December 31, 2022, respectively
6,724 5,394 
Derivative asset507 9,117 
Operating lease right-of-use assets6,573 4,569 
Other noncurrent assets18,913 15,280 
TOTAL ASSETS$5,146,555 $3,937,401 
LIABILITIES AND EQUITY
Current liabilities:
Accounts payable$61,995 $91,815 
Revenues and royalties payable209,589 163,368 
Accrued expenses221,366 80,942 
Asset retirement obligation415 948 
Derivative liability50,369 14,053 
Advances6,338 7,312 
Operating lease liabilities923 842 
Finance lease liabilities1,359 802 
Other current liabilities23,689 16,202 
Total current liabilities576,043 376,284 
Noncurrent liabilities:
Long-term debt, net1,722,066 1,053,879 
Deferred tax liability193,266 138,336 
Asset retirement obligation32,210 29,611 
Derivative liability7,612 — 
Operating lease liabilities3,286 3,889 
Finance lease liabilities1,538 876 
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Other noncurrent liabilities28,633 10,509 
Total noncurrent liabilities1,988,611 1,237,100 
Equity:
Preferred stock, $0.001 par value, 20,000,000 shares authorized; none issued or outstanding
— — 
Class A Common Stock, $0.001 par value, 200,000,000 shares authorized; 106,443,591 and 105,547,139 issued and outstanding at September 30, 2023 and December 31, 2022, respectively
106 106 
Class B Common Stock, $0.001 par value, 50,000,000 shares authorized; 34,257,641 and 34,259,641 issued and outstanding at September 30, 2023 and December 31, 2022, respectively
34 34 
Additional paid-in capital1,348,580 1,346,463 
Retained earnings 472,659 292,711 
Total Earthstone Energy, Inc. equity1,821,379 1,639,314 
Noncontrolling interest760,522 684,703 
Total equity2,581,901 2,324,017 
TOTAL LIABILITIES AND EQUITY$5,146,555 $3,937,401 

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EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(In thousands, except share and per share amounts)
Three Months EndedNine Months Ended
 September 30,September 30,
 2023202220232022
REVENUES  
Oil$366,574 $332,036 $978,949 $756,420 
Natural gas39,275 113,937 89,942 233,020 
Natural gas liquids69,967 85,522 190,069 210,756 
Total revenues475,816 531,495 1,258,960 1,200,196 
OPERATING COSTS AND EXPENSES
Lease operating expense101,156 75,829 276,736 147,974 
Production and ad valorem taxes38,419 40,219 103,377 87,729 
Depreciation, depletion and amortization123,059 90,880 343,799 191,669 
Impairment expense— — 854 — 
General and administrative expense26,508 14,188 64,079 40,571 
Transaction costs1,503 1,778 1,904 12,118 
Accretion of asset retirement obligation683 758 1,958 1,863 
Exploration expense488 2,248 7,036 2,340 
Total operating costs and expenses291,816 225,900 799,743 484,264 
Gain on sale of oil and gas properties1,290 14,803 47,404 14,803 
Income from operations185,290 320,398 506,621 730,735 
OTHER INCOME (EXPENSE)
Interest expense, net(34,232)(20,988)(79,180)(42,931)
Write-off of deferred financing costs— — (5,109)— 
(Loss) gain on derivative contracts, net(45,047)60,286 (111,820)(141,101)
Other income, net70 134 882 430 
Total other income (expense)(79,209)39,432 (195,227)(183,602)
Income before income taxes106,081 359,830 311,394 547,133 
Income tax expense(18,930)(60,518)(55,584)(81,673)
Net income87,151 299,312 255,810 465,460 
Less: Net income attributable to noncontrolling interest25,793 87,856 75,862 142,597 
Net income attributable to Earthstone Energy, Inc.$61,358 $211,456 $179,948 $322,863 
Net income per common share attributable to Earthstone Energy, Inc.:
Basic$0.58 $2.01 $1.69 $3.91 
Diluted$0.57 $1.94 $1.67 $3.61 
Weighted average common shares outstanding:
Basic106,332,278 105,254,778 106,172,873 82,483,635 
Diluted108,285,229 109,278,661 107,741,704 92,844,854 
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EARTHSTONE ENERGY, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(In thousands)

 For the Three Months Ended
September 30,		For the Nine Months Ended
September 30,
 2023202220232022
Cash flows from operating activities: 
Net income$87,151 $299,312 $255,810 $465,460 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation, depletion and amortization123,059 90,880 343,799 191,669 
Impairment of proved and unproved oil and gas properties— — 854 — 
Accretion of asset retirement obligations683 758 1,958 1,863 
Settlement of asset retirement obligations(691)(189)(1,727)(664)
Gain on sale of oil and gas properties(1,290)(14,803)(47,404)(14,803)
Gain on sale of office and other equipment— (106)(33)(152)
Total loss (gain) on derivative contracts, net45,047 (60,286)111,820 141,101 
Operating portion of net cash paid in settlement of derivative contracts(22,051)(58,923)(29,494)(169,708)
Stock-based compensation - equity and liability awards14,524 3,322 26,977 15,112 
Deferred income taxes18,701 57,045 54,930 77,591 
Write-off of deferred financing costs— — 5,109 — 
Amortization of deferred financing costs2,245 1,654 5,704 3,723 
Changes in assets and liabilities (net of assets and liabilities acquired):
(Increase) decrease in accounts receivable220 (5,189)63,523 (189,504)
(Increase) decrease in prepaid expenses and other current assets(10,473)(5,443)(11,307)(16,546)
Increase (decrease) in accounts payable and accrued expenses18,705 27,792 (43,326)92,450 
Increase (decrease) in revenues and royalties payable15,006 8,690 26,273 94,260 
Increase (decrease) in advances(5,705)20,978 (1,568)11,317 
Net cash provided by operating activities285,131 365,492 761,898 703,169 
Cash flows from investing activities:
Acquisition of oil and gas properties, net of cash acquired(848,404)(482,980)(924,482)(1,518,269)
Additions to oil and gas properties(165,218)(144,728)(522,404)(325,109)
Additions to office and other equipment(358)(338)(840)(1,694)
Proceeds from sales of oil and gas properties1,291 26,165 57,353 26,165 
Net cash used in investing activities(1,012,689)(601,881)(1,390,373)(1,818,907)
Cash flows from financing activities:
Proceeds from borrowings under Credit Agreement1,576,782 877,156 3,467,269 2,348,728 
Repayments of borrowings under Credit Agreement(876,398)(880,424)(3,037,022)(2,276,996)
Proceeds from issuance of 8% Senior Notes due 2027, net— 6 — 537,256 
Proceeds from issuance of 9.875% Senior Notes due 2031, net(911)— 480,304 — 
Proceeds from term loan— 244,209 — 244,209 
Repayment of term loan— — (250,000)— 
Proceeds from issuance of Series A Convertible Preferred Stock, net of offering costs of $674
— — — 279,326 
Cash paid related to the exchange and cancellation of Class A Common Stock(990)(551)(8,131)(5,168)
Cash paid for finance leases(158)(408)(599)(408)
Deferred financing costs(3,675)(3,599)(6,754)(15,222)
Net cash provided by financing activities694,650 236,389 645,067 1,111,725 
Net (decrease) increase in cash and cash equivalents(32,908)— 16,592 (4,013)
Cash and cash equivalents at beginning of period49,500 — — 4,013 
Cash and cash equivalents at end of period$16,592 $— $16,592 $— 
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Earthstone Energy, Inc.
Non-GAAP Financial Measures
Unaudited
The non-GAAP financial measures of Adjusted Diluted Shares, Adjusted EBITDAX, Adjusted Net Income, Free Cash Flow and Operating Margin per Boe, as defined and presented below, are intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Further, these non-GAAP measures should only be considered in conjunction with financial statements and disclosures prepared in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP measures, such as net income or loss, operating income or loss or any other GAAP measure of financial position or results of operations. Adjusted EBITDAX and Adjusted Net Income are presented herein and reconciled from the GAAP measure of net income (loss) because of their wide acceptance by the investment community as financial indicators.

I. Adjusted Diluted Shares

We define “Adjusted Diluted Shares” as the weighted average shares of Class A Common Stock - Diluted outstanding plus the weighted average shares of Class B Common Stock outstanding.

Our Adjusted Diluted Shares is a non-GAAP financial measure that provides a comparable per share measurement when presenting results such as Adjusted EBITDAX and Adjusted Net Income that include the interests of both Earthstone and the noncontrolling interest. Adjusted Diluted Shares is used in calculating several metrics that we use as supplemental financial measurements in the evaluation of our business, none of which should be considered as an alternative to, or more meaningful than, net income as an indicator of operating performance.

Adjusted Diluted Shares for the periods indicated:
Three Months Ended
Nine Months Ended
September 30,September 30,
2023202220232022
Class A Common Stock - Diluted
108,285,229 109,278,661107,741,70492,844,854
Class B Common Stock
34,257,64134,261,64134,258,94534,284,053
Adjusted Diluted Shares
142,542,870143,540,302142,000,649127,128,907

II. Adjusted EBITDAX

The non-GAAP financial measure of Adjusted EBITDAX (as defined below), as calculated by us below, is intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with GAAP. Further, this non-GAAP financial measure should only be considered in conjunction with financial statements and disclosures prepared in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP measures, such as net income or loss, operating income or loss or any other GAAP measure of financial position or results of operations. Adjusted EBITDAX is presented herein and reconciled from the GAAP measure of net income because of its wide acceptance by the investment community as a financial indicator.

We define “Adjusted EBITDAX” as net income plus, when applicable, accretion of asset retirement obligations; depreciation, depletion and amortization; impairment expense; interest expense, net; transaction costs; gain on sale of oil and gas properties; exploration expense; unrealized loss (gain) on derivative contracts; stock-based compensation (non-cash and expected to settle in cash); and income tax expense.

Our Adjusted EBITDAX measure provides additional information that may be used to better understand our operations. Adjusted EBITDAX is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net
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income as an indicator of operating performance. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that Adjusted EBITDAX is a widely followed measure of operating performance and is one of many metrics used by our management team and by other users of our consolidated financial statements. For example, Adjusted EBITDAX can be used to assess our operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure and to assess the financial performance of our assets and our Company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of Net income to Adjusted EBITDAX for the periods indicated:
Three Months EndedNine Months Ended
September 30,September 30,
($000s)2023202220232022
Net income$87,151 $299,312 $255,810 $465,460 
Accretion of asset retirement obligations683 758 1,958 1,863 
Depreciation, depletion and amortization123,059 90,880 343,799 191,669 
Impairment expense— — 854 — 
Interest expense, net34,232 20,988 79,180 42,931 
Transaction costs1,503 1,778 1,904 12,118 
Gain on sale of oil and gas properties(1,290)(14,803)(47,404)(14,803)
Exploration expense488 2,248 7,036 2,340 
Unrealized loss (gain) on derivative contracts22,996 (119,209)82,326 (28,607)
Stock based compensation(1)
14,524 3,322 26,977 15,112 
Income tax expense18,930 60,518 55,584 81,673 
Adjusted EBITDAX$302,276 $345,792 $808,024 $769,756 
(1)Consists of expense for non-cash equity awards and cash-based liability awards that are expected to be settled in cash. On February 8, 2023, cash-based liability awards were settled in the amount of $14.5 million. On February 9, 2022, cash-based liability awards were settled in the amount of $8.1 million. Stock-based compensation is included in General and administrative expense in the Condensed Consolidated Statements of Operations.

III. Adjusted Net Income

We define “Adjusted Net Income” as net income plus, when applicable, unrealized loss (gain) on derivative contracts; impairment expense; gain on sale of oil and gas properties; write-off of deferred financing costs; transaction costs; and the associated changes in estimated income tax.

Our Adjusted Net Income is a non-GAAP financial measure that provides additional information that may be used to further understand our operations. Adjusted Net Income is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net income as an indicator of operating performance. Certain items excluded from Adjusted Net Income are significant components in understanding and assessing a company’s financial performance, such as a company’s cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted Net Income, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that Adjusted Net Income is a widely followed measure of operating performance and is one of many metrics used by our management team and by other users of our consolidated financial statements. For example, Adjusted Net Income can be used to assess our operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure and to assess the financial performance of our assets and our Company without regard to capital structure or historical cost basis.
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The following table provides a reconciliation of Net income to Adjusted Net Income for the periods indicated:
Three Months EndedNine Months Ended
September 30,September 30,
($000s, except share and per share data)2023202220232022
Net income$87,151 $299,312 $255,810 $465,460 
Unrealized loss (gain) on derivative contracts22,996 (119,209)82,326 (28,607)
Impairment expense— — 854 — 
Gain on sale of oil and gas properties(1,290)(14,803)(47,404)(14,803)
Write-off of deferred financing costs— — 5,109 — 
Transaction costs1,503 1,778 1,904 12,118 
Income tax effect of the above(4,141)19,801 (7,638)4,611 
Adjusted Net Income$106,219 $186,879 $290,961 $438,779 
Adjusted Diluted Shares142,542,870 143,540,302 142,000,649 127,128,907 
Adjusted Net Income per Adjusted Diluted Share$0.75 $1.30 $2.05 $3.45 

IV. Free Cash Flow

Free Cash Flow is a non-GAAP financial measure that we use as an indicator of our ability to fund our development activities and reduce our leverage. We define Free Cash Flow as Net cash provided by operating activities; less (1) Settlement of asset retirement obligations, Gain on sale of office and other equipment, Write-off of deferred financing costs, Amortization of deferred financing costs and Change in assets and liabilities from the Condensed Consolidated Statements of Cash Flows; plus (2) Transaction costs and Exploration expense from the Condensed Consolidated Statements of Operations; less (3) Capital expenditures (accrual basis). Alternatively, Free Cash Flow could be defined as Adjusted EBITDAX (defined above), less interest expense, less current portion of Income tax (expense) benefit, less accrual-based capital expenditures.

Management believes that Free Cash Flow, which measures our ability to generate cash in addition to cash from our business operations, is an important financial measure for use in evaluating the Company's financial performance. Free Cash Flow should be considered in addition to, rather than as a substitute for, consolidated net income as a measure of our performance and net cash provided by operating activities as a measure of our liquidity.

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Free Cash Flow for the periods indicated:
Three Months EndedNine Months Ended
September 30,September 30,
($000s)2023202220232022
Net cash provided by operating activities$285,131 $365,492 $761,898 $703,169 
Adjustments - Condensed Consolidated Statements of Cash Flows
Settlement of asset retirement obligations691 189 1,727 664 
Gain on sale of office and other equipment— 106 33 152 
Write-off of deferred financing costs— — (5,109)— 
Amortization of deferred financing costs(2,245)(1,654)(5,704)(3,723)
Change in assets and liabilities(17,753)(46,828)(33,595)8,023 
Adjustments - Condensed Consolidated Statements of Operations
Transaction costs1,503 1,778 1,904 12,118 
Exploration expense488 2,248 7,036 2,340 
Capital expenditures (accrual basis)(191,711)(147,152)(568,423)(348,712)
Free Cash Flow$76,104 $174,179 $159,767 $374,031 

Alternate calculation of Free Cash Flow for the periods indicated:

Three Months EndedNine Months Ended
September 30,September 30,
($000s)2023202220232022
Adjusted EBITDAX$302,276 $345,792 $808,024 $769,756 
Interest expense, net(34,232)(20,988)(79,180)(42,931)
Current portion of income tax expense(229)(3,473)(654)(4,082)
Capital expenditures (accrual basis)(191,711)(147,152)(568,423)(348,712)
Free Cash Flow$76,104 $174,179 $159,767 $374,031 

V. Operating Margin per Boe and Operating Margin per Boe (Including Realized Hedge Settlements)

Operating Margin per Boe is a non-GAAP financial measure that we use to evaluate our operating performance on a per Boe basis. We define Operating Margin per Boe as average realized price per Boe minus lease operating expense per BOE and production and ad valorem taxes per Boe. Operating Margin per Boe (including Realized Hedge Settlements) is calculated as the sum of Operating Margin per Boe and Realized hedge settlements per Boe.

Our Operating Margin per Boe measure provides additional information that may be used to further understand our operating margins. We use Operating Margin per Boe as a supplemental financial measurement in the evaluation of our operational performance. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating our results. Operating Margin per Boe should not be considered as an alternative to, or more meaningful than, net income as an indicator of operating performance. Operating Margin per Boe, as used by us, may not be comparable to similarly titled measures reported by other companies.
12
v3.23.3
Cover
Oct. 31, 2023
Cover [Abstract]  
Document Type 8-K
Document Period End Date Oct. 31, 2023
Entity Central Index Key 0000010254
Entity Registrant Name EARTHSTONE ENERGY, INC
Amendment Flag false
Entity Incorporation, State or Country Code DE
Entity File Number 001-35049
Entity Tax Identification Number 84-0592823
Entity Address, Address Line One 1400 Woodloch Forest Drive
Entity Address, Address Line Two Suite 300
Entity Address, City or Town The Woodlands
Entity Address, State or Province TX
Entity Address, Postal Zip Code 77380
City Area Code 281
Local Phone Number 298-4246
Written Communications false
Soliciting Material false
Pre-commencement Tender Offer false
Pre-commencement Issuer Tender Offer false
Title of 12(b) Security Class A Common Stock, $0.001 par value per share
Trading Symbol ESTE
Security Exchange Name NYSE
Entity Emerging Growth Company false
Earthstone Energy (NYSE:ESTE)
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