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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