Earthstone Energy Inc. provided an update to its guidance and operations following closing on July 20 of a multimillion-dollar acquisition in the Permian Basin announced earlier this year.
So far in 2021, Earthstone has completed two acquisitions in the Permian Basin and announced another in the Eagle Ford Shale. The company’s latest completed deal included privately held operated assets located in the Midland Basin from Tracker Resource Development III LLC and affiliates of Sequel Energy Group LLC, which Earthstone agreed in April to acquire for $126.5 million in cash and equity.
“We have invested an estimated $360 million in aggregate acquisitions so far this year, and combined with a substantial increase in commodity prices, we have seen a significant increase in production volumes, cash flows and in estimated proved reserves and PV-10 value,” commented Robert J. Anderson, president and CEO of Earthstone, in a company release on July 20.
“We pride ourselves on targeting and completing acquisitions at highly accretive valuations and are focused on continuing to do so in the second half of the year.”
Earthstone estimates its oil and gas sales volumes for second-quarter 2021 to be approximately 2.07 million boe or an average of 22,716 boe/d (52% oil, 76% liquids), which the company said amounted to an increase of 12% over first-quarter volumes. Additionally, the company estimates total proved reserves, adjusted for the closing of the Tracker acquisition, were 133.6 million boe, with a corresponding PV-10 value of $1,677 million.
As a result, Earthstone has increased its full-year 2021 production guidance by 19% at the mid-point to 23,500-24,250 boe/d (50%-51% oil) compared to the previous guidance. Further, the company has revised its 2021 capital budget to include the addition of a second rig and now expects to spend between $130 million and $140 million for the year.
In the second quarter, Earthstone said it completed three gross (2.1 net) wells on the Hamman 45 pad in Midland County, Texas, in the Jo Mill, Lower Spraberry and Wolfcamp B zones.
Also in Midland County, Earthstone expects in the third quarter to complete and turn to sales the recently drilled 4-well Pearl Jam pad (95% working interest)—the company’s first wells drilled on acreage acquired from Independence Resource Management LLC in a transaction which closed in January.
Subsequent to drilling on the Pearl Jam pad, the rig was moved to western Reagan County, Texas, in early July to drill a four-wellpad, then is expected to move to Upton County, Texas, to drill another four-wellpad before being moved to Midland County late in 2021. The company plans to deploy its second rig in early August, beginning in Upton County.
“With our increased production base, cash flow and economic drilling inventory, the addition of a second rig will further develop our growing drilling inventory, primarily impacting production volumes in 2022 and beyond,” Anderson noted in the release.
“We expect to have nearly doubled our daily production volumes compared to 2020 levels, all while adding minimal G&A,” he added.
Earthstone funded all three of its acquisitions this year with cash on hand and borrowings under its senior secured revolving credit facility. The “conservative approach,” according to Anderson, allowed the company to maintain strong liquidity and low leverage while building significant scale.
Adjusted for the closing of the Tracker acquisition, Earthstone said it had an estimated $500,000 in cash and $301 million of long-term debt outstanding under our credit facility with a borrowing base of $550 million. Accounting for the undrawn borrowing base capacity and cash on hand, the company estimates it has total liquidity of approximately $249.5 million on a combined basis.
Despite this week’s decline, the total rig count was up 237, or 94%, over this time last year, according to Baker Hughes data going back to 1940.
A new Walker Ridge discovery in the U.S. Gulf by Chevron plus two more Wolfcamp Shale producers from CrownQuest’s Avogadro prospect in the Permian Basin top this week’s oil and gas drilling activity highlights from around the world.
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