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Lilis Energy, Inc.  (LLEX)
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    Sector  Energy    Industry Oil And Gas Production
   Industry Oil And Gas Production
   Sector  Energy


Lilis Energy, Inc.

Business Description

We are an oil and natural gas company, engaged in the acquisition, development and production of conventional and unconventional oil and natural gas properties. We have accumulated approximately 6,924 net acres in the Delaware Basin in Winkler and Loving Counties, Texas and Lea County, New Mexico. Our leasehold position is largely contiguous, allowing us to maximize development efficiency, manage full-cycle finding costs and potentially enabling us to generate higher returns for our shareholders. In addition, 66% of our acreage positions is held by production, and we are the named operator on 100% of our acreage. These characteristics give us control over the pace of development and the ability to design a more efficient and profitable drilling program that maximizes recovery of hydrocarbons. We expect that substantially all of our estimated 2017 capital expenditure budget will be focused on the development and expansion of our Delaware Basin acreage and operations. We also plan to continue to selectively and opportunistically pursue strategic bolt-on acreage acquisitions.

In addition to our core Delaware Basin focus area, we have approximately 14,254 net acres in the Denver-Julesburg Basin (“DJ Basin”) comprised of 280 net acres in the core of the Wattenberg field in Weld County, Colorado and 13,974 net acres in Laramie County, Wyoming, Nebraska and other parts of Colorado. Our acreage position has multi-zone potential with producing wells in the Niobrara, Codell, and J Sand. Our 2017 capital expenditure budget does not contemplate committing significant capital to our DJ Basin project area, and we are currently reviewing strategic alternatives with respect to these properties.

Our primary business objective is to increase our Delaware Basin leasehold position, reserves, production and cash flows at attractive rates of return on invested capital in order to enhance shareholder value. To achieve this objective, key elements of our strategy include:

Geographic focus in one of North America’s leading unconventional oil plays. We have accumulated a leasehold position of approximately 6,924 net acres in the Delaware Basin as of March 1, 2017. We believe the Delaware Basin has one of the highest rates of return among such formations in North America based on results of offset operators. In addition to leveraging our technical expertise in this core area, our geographically-concentrated acreage position allows us to capitalize on economies of scale with respect to drilling and production costs. Based on our drilling and production results to date and well-established offset operator activity in and around our project areas, we believe there are relatively low geologic risks and ample repeatable drilling opportunities across our core Delaware Basin operating area. We plan on allocating all of our 2017 capital budget to our Delaware Basin activities.

Develop our Delaware Basin leasehold position. We intend to focus on developing our acreage position in the Delaware Basin in order to maximize the value of our resource potential through utilizing the best-in-class drilling and completion techniques at the lowest possible costs. Through the development of our properties, we will seek to derisk our acreage position and drilling program and substantially increase our production and cash flow, thereby increasing the value of our properties. Our current leasehold position in the Delaware Basin has significant stacked-pay potential. We currently estimate our properties include at least seven productive zones and hold approximately 500 future drilling locations across all of the productive zones within this position. Initially, we intend to focus our horizontal development on the Wolfcamp formation, followed by the Bone Spring and Avalon formations through a combination of re-entering existing vertical wellbores and new drilling locations.

Pursue strategic acquisitions, organic leasing, and other creative structures to continue to develop and grow our production and leasehold position. We continue to identify and seek to acquire additional acreage and producing assets in the Delaware Basin. We believe that we can continue our successful track record of growing our acreage position in and around our core area at attractive costs. Since entering the Delaware Basin in June 2016, we have grown our acreage position 98% from 3,500 net acres to 6,924. We have accomplished this through buying smaller packages that are complementary to our core position and also by acquiring smaller, fragmented working interest positions on existing leaseholds.

Leverage our extensive operational expertise to reduce costs and enhance returns. We are focused on continuously improving our operating costs and metrics. We evaluate our operating metrics against those of other operators in our area in order to measure our performance and optimize our drilling and completion techniques. We utilize this process to make informed decisions about our capital expenditure program and drilling and completion activity. We intend to leverage our contiguous acreage position and our knowledge of the Delaware Basin to capture operational and economic efficiencies.

Employ leading drilling and completion techniques. We intend to employ industry best practices well design drilling and completion techniques by replicating leading Delaware Basin operators. Our contiguous acreage position is offset by RSP Permian, Matador, Devon, Shell, Anadarko, and XTO, among other operators, and we will continue to observe and monitor their drilling activity and well results in the area as we execute on our development plan.

Maintain financial liquidity and flexibility. We intend to utilize cash flow from operations, available working capital, borrowings under our multiple-draw term loan and access the capital markets in order to fund and execute our capital expenditure and development program. We believe this financial liquidity and flexibility will result in steady growth in leasehold, production, cash flow and proved reserves.

Hedging. We intend to opportunistically use commodity price hedging instruments to reduce our exposure to oil and natural gas price fluctuations and to help ensure that we have adequate cash flow to fund our debt service costs and capital programs. We intend to use hedging primarily to manage price risks and returns on certain acquisitions and drilling programs. Our policy is to consider hedging an appropriate portion of our production at commodity prices we deem attractive.


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