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Earthstone Energy Inc  (ESTE)
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    Sector  Energy    Industry Oil And Gas Production
   Industry Oil And Gas Production
   Sector  Energy

Earthstone Energy Inc

Business Description


Earthstone Energy, Inc. , a Delaware corporation formed in 1969, is a growth-oriented independent oil and natural gas development and production company. In addition, the Company is active in corporate mergers and the acquisition of oil and natural gas properties that have production and future development opportunities. Our operations are all in the upstream segment of the oil and natural gas industry and all our properties are onshore in the United States.

Our reserve portfolio primarily consists of assets in the Midland Basin of west Texas, the Eagle Ford trend of south Texas and in the Williston Basin of North Dakota. We have approximately 5,900 net leasehold acres in the Midland Basin, representing an average 40% working interest, located in Howard, Glasscock, Martin and Midland Counties. We have approximately 21,000 net leasehold acres in the Eagle Ford trend of south Texas, including approximately 18,000 net leasehold acres in the crude oil window in Fayette, Gonzales and Karnes Counties, with working interests ranging from approximately 25% to 50%, and approximately 3,000 net leasehold acres located in the natural gas and condensate window in La Salle County, with working interests averaging approximately 11%. In the Williston Basin of North Dakota, we have approximately 5,900 net leasehold acres, with working interests ranging from approximately 1% to 6%.

Our corporate headquarters are located in The Woodlands, Texas. We also have an operating office in Denver, Colorado and two field offices in south Texas. Our common stock, $0.001 par value per share (the “Common Stock”) is traded on the NYSE MKT under the symbol ESTE.

On November 7, 2016, we entered into a contribution agreement (the “Bold Contribution Agreement”), by and among the Company, Earthstone Energy Holdings, LLC, a newly formed Delaware limited liability company (“EEH”), Lynden USA, Inc., a Utah corporation (“Lynden USA”), an existing subsidiary of Earthstone, Lynden USA Operating, LLC, a newly formed Texas limited liability company (all wholly-owned subsidiaries of the Company), Bold Energy Holdings, LLC, a Texas limited liability company (“Bold Holdings”), and Bold Energy III LLC, a Texas limited liability company (“Bold”).

Under the Bold Contribution Agreement, the terms of which were unanimously approved by a special committee of disinterested members of the Company’s Board of Directors and the full Board (i) the Company will recapitalize the Common Stock into two classes, consisting of Class A and Class B, and all of its existing Common Stock will be converted into Class A common stock. Bold Holdings will purchase approximately 36.1 million shares of the Company’s Class B common stock for nominal consideration, with the Class B common stock having no economic rights in the Company other than voting rights on a pari passu basis with the Class A common stock. In addition, EEH will issue approximately 22.3 million of its membership units to the Company and Lynden USA, in the aggregate, and approximately 36.1 million membership units to Bold Holdings in exchange for each of the Company, Lynden USA and Bold Holdings transferring all of their assets to EEH; and (iii) each Bold Holdings’ membership unit in EEH, together with one share of Bold Holdings Class B common stock, will be convertible into Class A common stock on a one-for-one basis. Therefore, upon the closing of Bold Contribution Agreement, stockholders of the Company and unitholders of Bold Holdings are expected to own approximately 39% and 61%, respectively of the combined company’s then outstanding Class A and Class B common stock on a fully diluted basis. After closing, the Company expects conduct its activities through EEH and will be its sole managing member. The Bold Contribution Agreement is expected to close in the second quarter of 2017 and is subject to approval of the Company’s stockholders and other customary closing conditions.

We pursue a value-driven growth strategy focused on projects that we believe will generate strong and predictable rates of return and increases in stockholder value. Although we currently have significant non-operated properties, our intent is to operate the majority of our properties in order to control costs and direct the efficient development of such properties in an effort to optimize investment returns and profitability. Historically, we have operated the majority of our assets and implemented our strategy in multiple basins in order to enable us to benefit from regional changes and differences in realized prices, service costs, service availability and numerous other factors that would enhance the timely, cost-efficient and economic development of our assets, and lead to greater rates of return. This multi-basin strategy could change in the future and we could focus all or a majority of our capital expenditures in a single basin, as a result of acquisitions, project economics and capital market considerations. Management concentrates on building production, reserves and cash flows while seeking to expand our undeveloped acreage and drilling inventory. Further expansion of our asset base will be achieved through cost efficient development, exploitation and operation of our current assets and acreage and through additional leasing, acquisitions, development, drilling and, to a lesser extent, exploration activities, currently directed toward unconventional oil-weighted projects. Finally, management intends to pursue corporate and asset acquisition opportunities.

We are currently the operator of properties containing approximately 38% of our proved oil and natural gas reserves and 58% of our proved PV-10. As operator, we are able to directly influence development and production of operations of our operated properties. Our producing properties have reasonably predictable production profiles and cash flows, subject to commodity price fluctuations. Our status as an operator has allowed us to pursue the development of undeveloped acreage, further develop existing properties and generate new projects that we believe have the potential to increase stockholder value.

As is common in our industry, we participate in non-operated properties on a selective basis. Decisions to participate in non-operated properties are dependent upon the technical and economic nature of the projects and the operating expertise and financial standing of the operators.

Midland Basin

We have a non-operated position of approximately 5,900 net acres in the Midland Basin of west Texas. At present, our most active area within the basin is the horizontal Wolfcamp play occurring in Howard, Glasscock, Martin and Midland Counties, Texas. We have approximately 112 gross vertical and 5 gross horizontal producing wells with an average working interest of approximately 40% that are primarily operated by Crownquest Operating, LLC. We have identified approximately 180 gross horizontal locations in various benches of the Wolfcamp and Lower Spraberry as well as approximately 118 gross vertical wells that have potential in the Clearfork, Spraberry, Wolfcamp, Strawn and Fusselman formations.

Upon the closing of the Bold Contribution Agreement, we expect to have an operated position in approximately 20,900 net acres in the core of the Midland Basin across Reagan, Upton, Midland, Glasscock, Howard and Martin counties. The acreage is approximately 99% operated with an average working interest of approximately 85%. Current internal estimates indicate approximately 500 gross, largely de-risked operated drilling locations, the vast majority of which are in certain benches of the Wolfcamp A and B formation in the Lower Spraberry formation. Based on industry drilling and production operations additional locations may be proven to be economic, primarily in Reagan and Upton counties, in added benches in the Wolfcamp A, B and C and other formations.

Eagle Ford Basin

Operated Eagle Ford

The acreage is located in the crude oil window of the Eagle Ford shale trend of south Texas and is prospective for the Eagle Ford, Austin Chalk, Upper Eagle Ford, Buda, Wilcox and Edwards formations. We serve as the operator with a range of approximately 25% to 50% undivided ownership interest in substantially all of the acreage.

The number of Eagle Ford locations could potentially increase subject to future down spacing initiatives and successful implementation of slickwater enhanced completions. In addition, because our acreage position is prospective for the Austin Chalk, Upper Eagle Ford, Buda, Wilcox and Edwards formations, we may have additional future economic locations. The majority of our acreage is covered by an approximately 173 square mile 3-D seismic survey, which is being used to develop the Eagle Ford and identify Austin Chalk locations and other economic opportunities.




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