Investor Presentation. March 2016

Transcription

1 Investor Presentation March

2 Disclaimer Forward-Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act ), and Section 21E of the Securities Exchange Act of 1934, as amended. Statements that are not strictly historical statements constitute forward-looking statements and may often, but not always, be identified by the use of such words such as expects, believes, intends, anticipates, plans, estimates, potential, possible, or probable or statements that certain actions, events or results may, will, should, or could be taken, occur or be achieved. The forward-looking statements include statements about oil and gas pricing assumptions, future operations, estimates of reserve and production volumes, estimates of capital expenditures, expansion of production and reserves, future growth potential, possible acquisitions, and the ability to raise future capital. Forward-looking statements are based on expectations and assumptions and analyses made by Earthstone Energy, Inc. ( Earthstone ) in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances. However, whether actual results and developments will conform with expectations is subject to a number of risks and uncertainties, including adverse changes in oil and gas prices or protracted periods of low oil and gas prices; problems that may arise in the integration of the businesses involved with the transactions generally described on page 3; that the transactions may involve additional and unexpected costs; the risks of the oil and gas industry (for example, operational risks in exploring for, developing and producing crude oil and natural gas; risks and uncertainties involving geology of oil and gas deposits); the uncertainty of reserve estimates; the uncertainty of estimates and projections relating to future production, costs and expenses; potential delays or changes in plans with respect to exploration or development projects or capital expenditures; health, safety and environmental risks and risks related to weather; inability of management to execute its plans to meet its goals; shortages of drilling equipment, oil field personnel and services; unavailability of gathering systems, pipelines and processing facilities; the possibility that government policies may change; and that foreign production rates may change. Earthstone s annual report on Form 10-K for the year ended December 31, 2014 and other Securities and Exchange Commission ( SEC ) filings discuss some of the important risk factors identified that may affect Earthstone s business, results of operations, and financial condition. Earthstone undertakes no obligation to revise or update publicly any forward-looking statements except as required by law. 1

3 Investment Highlights Strong, Well Capitalized Balance Sheet Significant cash balance Common equity Traditional reserve-based credit facility $80mm borrowing base No additional securities outstanding Proven Management Team Operational excellence Four prior successful public entities Repeat investors Market recognition Eagle Ford and Bakken Concentration Oil-weighted reserves Growth through drill bit and acquisitions ~240 operated Eagle Ford locations ~200 non-operated Bakken locations Upside from down-spacing and other formations 2

4 Strategic Combination on December 19, 2014 Flatonia Energy, LLC 2.957mm shares (21.4%) 9.124mm shares (66.0%) Public Shareholders 1.754mm shares (12.6%) mm shares NYSE MKT: ESTE Earthstone closed two transformational transactions, creating a well-capitalized company with significant growth opportunities and substantial economic drilling inventory Oak Valley received million shares in exchange for its oil and gas properties and cash Appointed Mr. Frank Lodzinski as President and CEO Transaction is Mr. Lodzinski s fourth public strategic combination Flatonia received million shares for additional working interests in Fayette and Gonzales Counties, Texas Increased leasehold interest in properties from 30% to 50% Current Eagle Ford position in Fayette, Gonzales, and Karnes Counties now totals 22,585 net acres Houston headquarters and Denver office to facilitate Rockies expansion From 0 to 22.2 MMBoe in 2 years Doubled reserves in 2014 through drill bit and acquisitions Note: 1 Flatonia Energy, LLC is wholly-owned by Parallel Resource Partners, LLC and a 50% joint owner in Earthstone s Eagle Ford project in Fayette and Gonzales Counties 3

5 Oak Valley Resources, LLC owns 66.0% of Earthstone. Oak Valley s members include: Earthstone Management Significant equity investors CEO has over 40 years of experience Executive officers average over 30 years of industry experience Senior executives have worked together in multiple successful entities EnCap Investments L.P. Leading provider of private equity to the independent E&P sector 25-year history of providing capital Repeat investors Long relationship with Management Vlasic Group Partnered with Management for 26 consecutive years Former investor and director of GeoResources and predecessor entities Previously affiliated with Vlasic Foods prior to sale to Campbell Soup Wells Fargo Energy Capital Part of Wells Fargo Energy Group, a $30bn capital provider to the North American energy industry Predecessor entities have previously invested with Management Friends and Family Many repeat investors Long-term investment horizons Petroleum engineers, geologists, portfolio managers, endowments, family trusts, investment bankers, lawyers, and other accredited persons Source of incremental deal flow and advice 4

6 Management Strong management and technical team with demonstrated ability and prior success Equity investors interests are clearly aligned with shareholders Years of Experience Years Working Together Responsibility Frank Lodzinski President and CEO Robert Anderson Corporate Development and Reservoir Engineering Steve Collins Completions and Operations Chris Cottrell Land and Marketing Tim Merrifield Geological and Geophysical Francis Mury Drilling and Development Ray Singleton 37 - Operations and A&D, Northern Region (Former President and CEO of ESTE) Neil Cohen 12 3 Finance Bret Wonson 14 5 Accounting 5

7 Track Record Management team has consistently created shareholder value Repeated success with multiple entities over 20+ years Results have created long-term and recurring shareholders Extensive industry and financial relationships Technical and operational excellence Multi-basin experience Resource & conventional expertise Complex Gulf Coast drilling & horizontal resource proficiency Efficient and low-cost operator Proven acquisition and exploitation results Southern Bay Energy, LLC (Private) Gulf Coast, Permian Basin Initial investors 40% IRR AROC, Inc. (Private) Gulf Coast, Permian Basin, Mid-Con. Preferred investors 17% IRR Initial investors 4x return GeoResources, Inc. ( GEOI ) Eagle Ford, Bakken, Gulf Coast Initial investors 35% IRR Initial investors 4.8x return Initial Southern Bay investors achieved a combined 7.4x ROI upon the merger with GeoResources and subsequent sale in Texoil, Inc. ( TXLI ) Gulf Coast, Permian Basin Preferred investors 2.5x return Follow-on investors 3x return Initial investors 10x return Hampton Resources Corp. ( HPTR ) Gulf Coast Preferred investors 30% IRR Initial investors 7x return Note: Initial investors refers to (i) in the case of private entities, investors that participated in the initial capitalization or recapitalization of the entity at the time a change in management occurred, or (ii) in the case of public entities, public shareholders existing at the date the transaction was announced to the public. Past performance is not necessarily indicative of future results. 6

8 GeoResources Performance Summary Stock Performance (%) Proved Reserve Growth (MMBoe) (1) Merger with Southern Bay to Sale Announcement $40.0 $30.0 $20.0 Initial Investors: IRR = 35% Return on Capital = 4.8x CAGR = 57% $10.0 $ EBITDA Growth ($mm) (1) Production Growth (Boepd) (1) $200.0 CAGR = 94% ,000 CAGR = 51% 9,130 $ ,500 $ ,000 3,388 4,589 5,091 5,270 $50.0 $ , , (1) 2012 figures based on 2H 2012 actuals and 2H 2012 internal projections. 7

9 Go-Forward Strategy Utilize similar strategy to previous entities which delivered significant returns to shareholders Asset Strategy Optimize Existing Properties Implement operational improvements and efficiencies Drive costs down in all aspects of drilling and production Fully define geological and engineering upside Enhance Production / Cash Flow Acquire producing assets Pursue tactical operated acquisitions in proximity to existing properties/fields Divest non-core properties Corporate Strategy Deliver superior returns to shareholders Maintain financial flexibility and a strong balance sheet to facilitate additional acquisitions Focus on 2 to 3 basins Achieve low development, operating, and G&A cost structure Consistently improve operating margins Generate significant cash flow and net income Growth Through the Drill Bit Acquire acreage at favorable terms Continue to generate and de-risk high-impact drilling opportunities Execute multi-year development drilling program 8

10 Near-Term Goals M&A / A&D M&A / A&D Execution Grow Eagle Ford position and complimentary assets Acquire another core drilling area; focus areas include Bakken, Rockies, and Permian Portfolio rationalization consider divesting non core properties Operational Eagle Ford Increase EURs via longer laterals Enhance daily production, cost structure, free cash flow, and PV 10 Expand into Karnes County and further down trend Upper Austin Chalk Develop additional locations, hold large acreage positions Upside: Capture and de risk Upper Eagle Ford formation Test Buda and other formations Financial Maintain reasonable equity / debt mix Seek additional external equity and/or debt for acquisitions, as needed Organizational With price improvement and company growth: Continue to hire top technical talent; build bench strength in G&G and engineering Expand Denver presence 9

11 Company Overview Proven, growth-oriented management team Oil-weighted with strong cash margins Focused on the prolific Eagle Ford and Bakken Robust liquidity with clean balance sheet Ongoing conversion of undeveloped acres 27,400 Eagle Ford and Bakken net acres Inventory upside through downspacing and targeting additional horizons 2015 proved reserve distribution (by reserve quantity): Eagle Ford Trend 67% Bakken / Three Forks Trend 23% East Texas/Other 10% PDP 51% Proved Reserves 1 PDNP 17% PUD 32% 12.6 MMBoe Oil 74% Gas 18% NGL 8% Q Production PV ,872 Boepd $104.4mm Oil 65% Gas 22% NGL 13% PDP 73% PDNP 18% PUD 9% Notes: 1 Proved reserves as estimated by Cawley, Gillespie & Associates, Inc. utilizing SEC price methodology effective December 31, PV-10 is a non-gaap financial measure. Please see Appendix A for further disclosures 10

12 Asset Overview 11

13 Southern Region Conventional and unconventional assets Eagle Ford / Austin Chalk South Texas Oklahoma Le Flore County: 13,900 net acres; 33 PDP wells in Red Oak Field Grayson County: 325 net acres prospective for horizontal Viola play 2 PDP wells East Texas Other Gonzales/Fayette/Karnes Counties: 18,600 net acres; 33% to 50% working interest; operated; 76 PDP wells, ~240 Eagle Ford and ~8 Austin Chalk drilling locations La Salle County: 2,900 net acres; 10% to 15% working interest 64 PDP wells, ~180 drilling locations Webb County: 2,500 net acres; waterflood; 86% operated working interest 23 PDP wells Texas East Texas: 7,960 net acres prospective for Travis Peak, Pettet, Rodessa, James Lime, and Haynesville/Bossier formations 72 PDP wells and an inventory of ~135 drilling locations Milam County: 11,600 net acres prospective for Austin Chalk, Buda, Eagle Ford, Georgetown, and Woodbine formations Zapata County: 770 net acres; 7 PDP wells; Lobo formation; operated and non-operated Note: Estimated number of locations include proved undeveloped as well as management s estimates of additional potential. Actual locations drilled and quantities that may be ultimately recovered from the Company s interests could differ substantially from management s estimates. 12

14 Eagle Ford Summary Operated Fayette, Gonzales, and Karnes Counties 38,000 gross / 18,600 net leasehold acres Working interests range from 33% to 50% 64 gross producing wells (62 operated / 2 nonop) January 2016 average gross production of ~5,100 Boepd (98% operated) Approximately 240 identified gross Eagle Ford drilling locations Majority of acreage covered by 173 square mile 3-D seismic shoot Avoid faulting for steering Eagle Ford wells Indicate natural fractures Delineate other prospective opportunities Other Potential: Upper Eagle Ford, Austin Chalk, Buda, Wilcox, and Edwards Non-operated La Salle County 25,400 gross / 2,900 net leasehold acres Working interests range from 10% to 15% 13

15 Eagle Ford and Austin Chalk Intervals Across the Acreage Stratigraphic Column S.W. Fayette & N.E. Gonzales Co. s, Texas Formation Frio Vicksburg Jackson Yegua-Cockfield Weches Queen City Reklaw Carrizo Sand Wilcox Sands Missing / Eroded Section UPPER AUSTIN CHALK TARGET Navarro / Taylor Shale Pecan Gap / Anacacho Chalk Midway Shale Navarro Sands Taylor Sands Upper Pecan Gap Shale Ash Mkr Giddings Austin Chalk Field Interval Eagle Ford Carbonate Buda Limestone Del Rio Shale Georgetown Limestone Edwards Limestone Glenrose Limestone Travis Peak / Cotton Valley Upper Eagle Ford Shale Lower Eagle Ford Shale Eagleville Field Interval Southern Bay Eagle Ford Interval LOWER AUSTIN CHALK TARGET EAGLE FORD TARGET Smackover Pre Louann Salt Louann Salt 14

16 Operated Eagle Ford D&C Activity Brought 21 gross wells on line in 2014 Brought 13 gross wells on line in to 750 foot spacing between wells Offset by Sanchez and Penn Virginia Drilling and completion costs of $5.4mm to $6.4mm depending on lateral length Earthstone Sanchez Penn Virginia 15

17 Drilling Performance Days vs Depth Most recent wells have been drilled and cased in ~15 days at a cost of $2.5mm to $3.0mm Unit Average Comparison Fayette / Gonzales County Earthstone Operating Days vs. Depth Run Surface Casing 4000 Non X Rig Wells Newtonville North Unit OV 6000 Depth (ft MD) Build Curve Hope Unit Richards / Murphy North Unit Rumley Unit X37 EF Wells Matthews South Unit Run 5 1/2" Production Casing Matthews North Unit Days Boggs Unit 16

18 Eagle Ford Drilling and Completion Trends Pad Averages Feet Drilled per Day Drilling Capex per Foot Drilled ($/Foot) 1,400 1,200 1, , ,045 1,086 1, , Kolar Labatt (3) Flatonia SW (3) Flatonia SW (5) Newtonville N. (4) Garza Richards N (3) Murphy N Hope (5) Rumley (5) Matthews S (1) Matthews N 0 Kolar Labatt (3) Flatonia SW (3) Flatonia SW Newtonville N. (5) (4) Garza Richards N (3) Murphy N Hope (5) Rumley (5) Matthews S (1) Matthews N Goal Completion Capex per Stage ($/Stage) Total Well Cost per Lateral Length ($/Foot) 250,000 2,000 1, , , , , , , , , , , , , , ,000 1,750 1,500 1,250 1, ,422 1,570 1,409 1,365 1,345 1,166 1, , Kolar Labatt (3) Flatonia SW (3) Flatonia SW (5) Newtonville N. (4) Garza Richards N (3) Murphy N Hope Rumley Matthews S Goal 0 Kolar Labatt (3) Flatonia SW (3) Flatonia SW (5) Newtonville N. (4) Garza Richards N (3) Murphy N Hope Rumley Matthews S Notes: Amount in parentheses indicates the number of wells drilled/completed Analysis excludes three wells that involved a side-track and four wells that required intermediate casing 17

19 Recent Eagle Ford Acquisitions Karnes and Gonzales Counties Acquired 3,050 gross / 1,185 net acres in Karnes and Southern Gonzales Counties Potential for 33+ gross Eagle Ford locations Laterals of 5,000 feet to 7,000 feet Operational control with 33% to 50% working interest In Q4 2015, drilled four well pad in Karnes County, with first production expected in H No near-term lease obligations HBP acreage 2017 to 2018 expirations 18

20 Recent Eagle Ford Acquisitions Karnes and Gonzales Counties Month Acquired June 2015 June 2015 August 2015 Total County Karnes Gonzales Gonzales Objective Eagle Ford Eagle Ford Eagle Ford Leasehold Acres: Gross 350 1,000 1,650 3,050 Net ,185 Working Interest 33% 50% 33% 39% Spacing (Feet) Gross Drilling Locations Operated Eagle Ford Development Plans Approximately 33 planned gross Eagle Ford drilling locations in Karnes and Southern Gonzales Counties Four gross wells drilled in Q4 2015, with continued future development subject to prices Significant producing Eagle Ford well control 19

21 Upper Austin Chalk Naturally Fractured Reservoir January 2016 average gross production of ~400 Boepd (93% operated) 9 gross producing wells (8 operated / 1 non-op) 7,880 gross acres held by production Brought 4 gross wells on line in 2014 and 2 gross wells online in 2015; 1 well brought online in February 2016 Pending well performance, ability to add 8 new locations that can hold over 12,000 gross acres (6,000 net acres) for future Eagle Ford development D&C of $4.3mm per well; 13,000 feet of lateral length (two opposing laterals) Integrating regional geology with 3-D seismicdefined fracture indications ESTE Operated Producing Well ESTE Operated Drilling Location 20

22 Williston Basin Bakken/Three Forks Play 5,900 net core acres predominantly in McKenzie and Dunn Counties of North Dakota that are prospective for the Bakken/Three Forks formation 136 gross wells producing Average working interest of ~4% 35 gross wells currently being drilled or completed ~140 potential gross drilling locations Primary operators include: Statoil, Oasis, ConocoPhillips/Burlington, Continental, ExxonMobil/XTO, Marathon, SM Energy Majority of units in McKenzie County, ND Banks Field Largest development area Interest in 22 spacing units Operators down-spacing to 6-7 wells per unit in the Bakken Indian Hill Field Summary Near-Term Strategy Expand acreage Acquire production Establish operating presence Note: Estimated number of locations include proved undeveloped as well as management s estimates of additional potential. Actual locations drilled and quantities that may be ultimately recovered from Earthstone s interests could differ substantially from management s estimates. 21

23 2016 Hedging Summary Oil and Gas Production Hedged Avg. hedged oil price = $54.17/Bbl Avg. hedged gas price = $2.530/MMBtu Swap Positions Oil / Gas Quantity Oil BBls/mo Gas MMBtu/mo Period Fixed Price Oil 5,000 Jan 16 Mar Oil 10,000 Jan 16 Jun Oil 10,000 Jan 16 Dec ,000 Oil 10,000 Apr 16 Mar Gas 70,000 Feb 16 Dec ,000 Gas 40,000 Jan 17 Dec Oil (Bbls) Gas (MMBtu) 22

24 Appendix A PV-10 Present Value Discounted at 10% ( PV-10 ) is a non-gaap financial measure that differs from the GAAP measure standardized measure of discounted future net cash flows in that PV-10 is calculated without regard to future income taxes. Earthstone and Lynden management believe that the presentation of the PV-10 value is relevant and useful to investors because it presents the estimated discounted future net cash flows attributable to our estimated proved reserves independent of our income tax attributes, thereby isolating the intrinsic value of the estimated future cash flows attributable to our reserves. Because many factors that are unique to each individual company impact the amount of future income taxes to be paid, Earthstone and Lynden believe the use of a pre-tax measure provides greater comparability of assets when evaluating companies. PV-10 does not necessarily represent the fair market value of oil and natural gas properties. PV-10 is not a measure of financial or operational performance under GAAP, nor should it be considered in isolation or as a substitute for the standardized measure of discounted future net cash flows as defined under GAAP. PV-10s as of December 31, 2015 utilized SEC price methodology and were based on $50.28 per barrel of oil and $2.590 per MMBTU for natural gas. 23

25 Contact Information Frank Lodzinski President and CEO Robert Anderson EVP, Corporate Development and Engineering Neil Cohen VP, Finance, and Treasurer Corporate Headquarters Houston 1400 Woodloch Forest Drive Suite 300 The Woodlands, TX (281) Denver th Street Suite 2320 Denver, CO (303) Website 24