We are an independent oil and natural gas company, focused on the acquisition,
development and production of unconventional oil, NGLs and natural gas properties
in the Eagle Ford Shale in Texas, where we have accumulated approximately 41,274
gross (34,170 net) acres in what we believe to be the formation’s crude
oil and condensate windows as of December 31, 2016. We operate in one industry
segment, which is the exploration, development and production of oil, NGLs and
natural gas. Our current operational activities and consolidated revenues are
generated from markets exclusively in the United States, and, as of December
31, 2016, we had no long lived assets located outside the United States.
Our primary operational focus is on our Eagle Ford Shale position in seven
Texas counties. Our properties in the Eagle Ford Shale are divided into three
distinct regions: Western Eagle Ford (comprised of Dimmit, La Salle and Frio
Counties), Central Eagle Ford (comprised of Gonzales and Wilson Counties) and
Eastern Eagle Ford (comprised of Brazos and Robertson Counties). As of December
31, 2016, we operated 100% of our Eagle Ford position and approximately 75%
of our acreage was held by production, or HBP. Third party engineers have identified
141 gross (118 net) horizontal drilling locations on our Eagle Ford Shale acreages.
We also own 44,084 gross (28,655 net) undeveloped acres in the Bakken Three
Forks formation in Roosevelt County, Montana, our “West Poplar”
property. We are currently evaluating our 2017 budget for this area
We plan to invest the majority of our 2017 capital budget for the horizontal
development of our Eagle Ford Shale properties and have allocated between $62
million and $72 million to drilling and completion activities to develop these
assets, of which up to $10 million is allocated for leasehold acquisition expenditures.
We have historically grown our Eagle Ford leasehold position through organic
leasing activities, farm-ins, acquisitions, and other structures. We believe
our management team’s extensive experience and our reputation as an operator
in the basin provide us with relationships and contacts that could serve as
a platform for expanded opportunities to grow our acreage footprint.
We seek to deploy advanced drilling, completion and production techniques across
our unconventional acreage with a goal of minimizing completed well costs and
maximizing per well hydrocarbon recoveries. Increasingly, we utilize 3-D seismic
imaging to plan our lateral programs while utilizing log-based petrophysical
analysis to optimize our drilling targets within distinct horizons within the
Eagle Ford Shale section. We are also frequently drilling laterals in excess
of 7,000 feet in an effort to maximize per-well recoveries and economic returns.
Further, we are utilizing thru-bit logging in our laterals to design non-geometric
completions which allow for the use of diverters while increasing proppant concentrations
in an effort to make our fracture stimulations more effective. Additionally,
we employ active choke management to optimize pressure drawdowns in an effort
to maximize liquid hydrocarbon recoveries.
Our primary business objective is to increase reserves, production and cash
flows at attractive rates of return on invested capital. We are focused on exploiting
long-lived, unconventional oil, NGLs and natural gas reserves from the crude
oil window of the Eagle Ford Shale. Key elements of our business strategy include:
Develop our Eagle Ford Shale leasehold positions. We intend to continue developing
our acreage position to maximize the value of our resource potential and generate
returns for our stockholders through continuing to utilize best in class drilling
and completion techniques at the lowest possible costs. Through the conversion
of our resource base to developed reserves, we will seek to increase our production
and cash flow, thereby increasing the value of our reserves. As of December
31, 2016, we were producing from 70 gross (62 net) Eagle Ford wells and we intend
to deploy the majority of our capital budget for 2017 on the development of
our Eagle Ford acreage.
Pursue organic leasing, strategic acquisitions, and other structures to continue
to develop and grow our production and leasehold position. We believe that we
will be able to continue to identify and acquire additional acreage and producing
assets in the Eagle Ford Shale. By leveraging our longstanding relationships
in this area, we intend to expand our Eagle Ford shale acreage. We have increased
our Eagle Ford Shale net acres by over nine times from 3,710 net acres in 2011
to 34,170 net acres as of December 31, 2016. We also intend to continue to find
creative ways to fund our continued development while maintaining financial
discipline and seeking to maximize returns from our projects. We have successfully
used farm-ins and drilling commitments as means of adding prospective Eagle
Ford Shale acreage by committing to drilling activity as opposed to deploying
capital with lease acquisition costs. We also have a track record of executing
on this strategy through our Joint Development Agreement with IOG Capital L.P.,
or IOG. This agreement allows for working interest level participation with
IOG participating on a promoted basis for funding farm-ins. It is a wellbore
only agreement that allows Lonestar to develop acreage or hold expiring acreage
while maintaining some upside through a specified return hurdle earn-in and
all of the upside associated with future development of offsetting wells.
Leverage our extensive operational expertise and concentration of our operating
areas to reduce costs and enhance returns. We are focused on continuously improving
our operating measures. We intend to leverage the magnitude and concentration
of our acreage within the Eagle Ford Shale in our operating areas, as well as
our experience within our areas of operation to capture economies of scale,
including by employing multiple-well pad drilling, and utilizing centralized
production and fluid handling facilities. Our management and operating team
has significant industry and operating experience, and it regularly evaluates
our operating measures against those of other operators in our area in order
to improve our performance and identify additional opportunities to optimize
our drilling and completion techniques and make informed decisions about our
capital expenditure program and drilling activity.
Maintain operational control over our drilling and completion operations. We
operate 100% of the Eagle Ford Shale wells in which we have a working interest
and intend to maintain a high degree of operational control over substantially
all of our producing locations. Moreover, we hold an average working interest
of 83% in our Eagle Ford Shale leasehold. We believe this strategy allows us
to manage the timing and levels of our development spending, while controlling
the techniques used to drill and complete wells, as well as overall well costs
and operating costs. We expect to operate the drilling and completion phase
on approximately 100% of our identified drilling locations. Approximately 86%
of our existing Eagle Ford net acreage that contains our Proved Reserves is
HBP, and 75% of our existing Eagle Ford net acreage is HBP, and we anticipate
that our current planned development program in 2017 and 2018 will be sufficient
to maintain the majority of our acreage currently not HBP. We believe that continuing
to exercise a high degree of control over our acreage position will provide
us with flexibility to manage our drilling program and optimize our returns
and profitability.
Maintain and enhance financial liquidity and flexibility. We intend to use
cash on hand and borrowings from our $500 million Senior Secured Credit Facility
(as defined below), combined with our cash flow from operations, to continue
executing a capital expenditure program that we believe will help us achieve
steady growth of production, cash flow and proved reserves. Furthermore, we
intend to continue to employ a hedging strategy on our PDP production to achieve
more predictable cash flow and to reduce our exposure to adverse fluctuations
in oil, NGLs and natural gas prices. We regularly assess the futures markets
for opportunities to enter into additional hedging contracts.
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