Business Wire | Mar 10, 2021 04:53PM EST

Earthstone Energy, Inc. Reports 2020 Fourth Quarter and Full Year Results

Mar. 10, 2021

THE WOODLANDS, Texas--(BUSINESS WIRE)--Mar. 10, 2021--Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "we" or "us"), today announced financial and operating results for the quarter and year ended December 31, 2020.

Fourth Quarter 2020 Highlights

* Signed Purchase and Sale Agreement on the IRM Acquisition(1) on December 17, 2020 which was closed on January 7, 2021 * Average daily production of 14,809 Boepd(2) * Adjusted EBITDAX(3) of $29.8 million ($21.87 per Boe) * Operating portion of net cash received in settlement of derivative contracts of $8.4 million * Free Cash Flow(3) of $8.4 million * Capital expenditures of $20.3 million * Reduction of long-term debt of $15.0 million * Net loss of $18.4 million or $0.28 per Adjusted Diluted Share(3) Adjusted net income of $5.8 million or $0.09 per Adjusted Diluted Share(3)

Full Year 2020 Highlights

* Average daily production of 15,276 Boepd(2) * Adjusted EBITDAX(2) of $144.2 million ($25.80 per Boe) * Operating portion of net cash received in settlement of derivative contracts of $56.0 million * Free Cash Flow(2) of $72.2 million * Capital expenditures of $66.8 million * Reduction of long-term debt of $55.0 million * Net loss of $29.4 million or $0.45 per Adjusted Diluted Share(3) Adjusted net income of $30.0 million or $0.46 per Adjusted Diluted Share(3)

On January 7, 2021, Earthstone, Earthstone Energy Holdings, LLC, a(1) subsidiary of the Company, Independence Resources Holdings, LLC, and Independence Resources Manager, LLC executed a Purchase and Sale Agreement dated December 17, 2020 (the "IRM Acquisition").

(2) Represents reported sales volumes.

(3) See "Non-GAAP Financial Measures" section below.

Management Comments

Mr. Robert J. Anderson, President and CEO of Earthstone, commented, "In 2020, Earthstone achieved excellent results and delivered on its commitment to maintain balance sheet strength, operating efficiency and a persistent focus on identifying strategic and accretive growth opportunities. We overcame the unprecedented challenges of 2020 and finished the year in stronger position by managing to increase total production 14% and hold Adjusted EBITDAX almost flat compared to 2019, all while reducing our capital expenditures by 68% and utilizing free cash flow to reduce leverage, defined as total debt to Adjusted EBITDAX, from 1.2x in 2019 to 0.8x in 2020.

"By completing the acquisition of Independence Resource Management, LLC ("IRM") on January 7, 2021, we have increased our scale with complementary and accretive assets that, similar to our existing assets, carry a low-cost structure in order to further drive free cash flow generation and with drilling inventory that will deliver attractive returns in 2021. We intend to execute on our goals to maintain financial strength, capital efficiency and operating excellence while continuing to seek further strategic growth opportunities."

Operational Update

The Company recently commenced its 2021 drilling program with the deployment of a rig in Midland County. After drilling on a three-well pad in the Hamman project, the Company expects to drill a four-well pad on the recently acquired IRM Spanish Pearl project. The Company anticipates moving the rig to Upton County and drilling 10-11 wells. Consistent with previously released guidance, the Company anticipates drilling 16 gross / 14.8 net operated wells and spudding an additional 5 gross / 3.7 net operated wells during 2021.

The Company recently completed 5 gross / 3.7 net wells in Upton County and anticipates turning these wells to sales before the end of March. The Company anticipates completing and turning to sales a total of 16 gross / 13.5 net operated wells in 2021, as is consistent with previously released guidance.

The unprecedented weather in February created production challenges for all facets of the industry including producers, mid-stream and gathering companies and refiners. While production has returned to previous levels, we do expect that production and revenue reductions will have an impact on first quarter results.

Selected Financial Data (unaudited)

($000s except where Three Months Ended Years Endednoted)

December 31, December 31,

2020 2019 2020 2019

Total revenues $ 36,675 $ 66,788 $ 144,523 $ 191,262



Lease operating expense 7,160 8,198 29,131 28,683



General andadministrative expense 6,229 5,696 18,179 18,963 (excluding stock-basedcompensation)

Stock-based 2,389 1,968 10,054 8,648 compensation (non-cash)

General and $ 8,618 $ 7,664 $ 28,233 $ 27,611 administrative expense



Net (loss) income $ (18,381) $ (5,640) $ (29,434) $ 1,580

Less: Net (loss) incomeattributable to (9,910) (3,016) (15,887) 861 noncontrolling interest

Net (loss) incomeattributable to (8,471) (2,624) (13,547) 719 Earthstone Energy, Inc.

Net (loss) income per common share^(1)

Basic (0.28) (0.09) (0.45) 0.02

Diluted (0.28) (0.09) (0.45) 0.02

Adjusted EBITDAX^(2) $ 29,798 $ 49,893 $ 144,246 $ 146,273



Production^(3):

Oil (MBbls) 660 1,059 3,180 3,086

Gas (MMcf) 2,251 1,442 7,282 4,760

NGL (MBbls) 327 317 1,198 1,022

Total (MBoe)^(4) 1,362 1,617 5,591 4,902

Average Daily 14,809 17,571 15,276 13,429 Production (Boepd)

Average Prices:

Oil ($/Bbl) 41.43 56.92 37.85 55.71

Gas ($/Mcf) 1.65 1.24 1.18 0.82

NGL ($/Bbl) 17.18 14.92 13.03 15.09

Total ($/Boe) 26.92 41.31 25.85 39.02

Adj. for RealizedDerivatives Settlements:

Oil ($/Bbl) 54.21 58.67 54.95 59.82

Gas ($/Mcf) 1.67 1.48 1.42 1.49

NGL ($/Bbl) 17.18 14.92 13.03 15.09

Total ($/Boe) 33.15 42.68 35.89 42.26

Operating Margin per Boe

Average realized price^ $ 26.92 $ 41.31 $ 25.85 $ 39.02 (5)

Lease operating expense 5.26 5.07 5.21 5.85

Production and ad 1.62 2.39 1.68 2.42 valorem taxes

Operating margin per 20.04 33.85 18.96 30.75 Boe

Realized hedge 6.23 1.37 10.04 3.24 settlements

Operating margin perBoe (including realized $ 26.27 $ 35.22 $ 29.00 $ 33.99 hedge settlements)

(1)Net (loss) income per common share attributable to Earthstone Energy, Inc.

(2)See "Non-GAAP Financial Measures" section below.

(3)Represents reported sales volumes.

(4)Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equals one barrel of oil equivalent (Boe).

(5)Includes $2.1 million of cash proceeds related to hedges unwound during the first quarter of 2019.

Liquidity Update

As of December 31, 2020, we had $1.5 million in cash and $115 million of long-term debt outstanding under our credit facility with a borrowing base of $240 million. With the $125 million of undrawn borrowing base capacity and $1.5 million in cash, we had total liquidity of approximately $126.5 million.

On January 7, 2021, Earthstone closed the IRM Acquisition. When adjusting to include the IRM Acquisition, we had an estimated $15.3 million in cash and $260 million outstanding under our credit facility, as amended, with a borrowing base of $360 million. With the $100 million of undrawn borrowing base capacity and $15.3 million in cash, we had total liquidity of approximately $115.3 million on a combined basis. When adjusted to include the impact of the IRM Acquisition, combined leverage at December 31, 2020 was 1.2x.

As of March 1, 2021, we had $10.1 million in cash and $227.5 million of long-term debt outstanding under our credit facility, as amended, with a borrowing base of $360 million. With the $132.5 million of undrawn borrowing base capacity and $10.1 million in cash, we had total liquidity of approximately $142.6 million.

Capital Expenditures

During 2020, we incurred capital expenditures of approximately $66.8 million, on an accrual basis, primarily consisting of drilling and completion costs. We recently commenced our drilling program with the deployment of a rig this month and we expect to spend $90-$100 million in total capital expenditures based on our current 2021 capital spending plan.

Hedge Position

Hedging Activities

The following table sets forth our outstanding derivative contracts at December 31, 2020. When aggregating multiple contracts, the weighted average contract price is disclosed.

(1) Net (loss) income per common share attributable to Earthstone Energy, Inc.

(2) See "Non-GAAP Financial Measures" section below.

(3) Represents reported sales volumes.

Barrels of oil equivalent have been calculated on the basis of six thousand(4) cubic feet (Mcf) of natural gas equals one barrel of oil equivalent (Boe).

Includes $2.1 million of cash proceeds related to hedges unwound during the(5) first quarter of 2019.

Liquidity Update

As of December 31, 2020, we had $1.5 million in cash and $115 million of long-term debt outstanding under our credit facility with a borrowing base of $240 million. With the $125 million of undrawn borrowing base capacity and $1.5 million in cash, we had total liquidity of approximately $126.5 million.

On January 7, 2021, Earthstone closed the IRM Acquisition. When adjusting to include the IRM Acquisition, we had an estimated $15.3 million in cash and $260 million outstanding under our credit facility, as amended, with a borrowing base of $360 million. With the $100 million of undrawn borrowing base capacity and $15.3 million in cash, we had total liquidity of approximately $115.3 million on a combined basis. When adjusted to include the impact of the IRM Acquisition, combined leverage at December 31, 2020 was 1.2x.

As of March 1, 2021, we had $10.1 million in cash and $227.5 million of long-term debt outstanding under our credit facility, as amended, with a borrowing base of $360 million. With the $132.5 million of undrawn borrowing base capacity and $10.1 million in cash, we had total liquidity of approximately $142.6 million.

Capital Expenditures

During 2020, we incurred capital expenditures of approximately $66.8 million, on an accrual basis, primarily consisting of drilling and completion costs. We recently commenced our drilling program with the deployment of a rig this month and we expect to spend $90-$100 million in total capital expenditures based on our current 2021 capital spending plan.

Hedge Position

Hedging Activities

The following table sets forth our outstanding derivative contracts at December 31, 2020. When aggregating multiple contracts, the weighted average contract price is disclosed.

Period Commodity Volume Price (Bbls / MMBtu) ($/Bbl / $/MMBtu)

2021 Crude Oil Swap 2,294,000 $51.17

2021 Crude Oil Basis Swap (1) 1,825,000 $1.05

2022 Crude Oil Swap 365,000 $47.70

2021 Natural Gas Swap 4,380,000 $2.76

2021 Natural Gas Basis Swap (2) 4,380,000 $(0.45)

(1)

The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.

(2)

The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.

Upon closing of the IRM Acquisition on January 7, 2021, Earthstone assumed the hedges that IRM had in place consisting of approximately 1,008,950 Bbls of oil at $41.07/Bbl.

Hedging Update

The following table sets forth our outstanding derivative contracts at March 4, 2021. When aggregating multiple contracts, the weighted average contract price is disclosed.

(1) The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.

(2) The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.

Upon closing of the IRM Acquisition on January 7, 2021, Earthstone assumed the hedges that IRM had in place consisting of approximately 1,008,950 Bbls of oil at $41.07/Bbl.

Hedging Update

The following table sets forth our outstanding derivative contracts at March 4, 2021. When aggregating multiple contracts, the weighted average contract price is disclosed.

Period Commodity Volume Price (Bbls / MMBtu) ($/Bbl / $/MMBtu)

2021 Crude Oil Swap 3,326,750 $48.04

2021 Crude Oil Basis Swap (1) 2,857,750 $0.79

2021 Crude Oil Basis Swap (2) 1,032,750 $(0.26)

2022 Crude Oil Swap 1,458,500 $52.96

2022 Crude Oil Basis Swap (1) 1,368,750 $0.74

2021 Natural Gas Swap 6,912,000 $2.81

2021 Natural Gas Basis Swap (3) 6,912,000 $(0.37)

Q1 2022 Natural Gas Swap 450,000 $2.97

Q1 2022 Natural Gas Basis Swap (3) 450,000 $(0.23)

(1)

The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.

(2)

The swap is between WTI Roll and the WTI NYMEX.

(3)

The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.

Conference Call Details

Earthstone is hosting a conference call on Thursday, March 11, 2021 at 10:00 a.m. Eastern (9:00 a.m. Central) to discuss the Company's operations and financial results for the fourth quarter and full year 2020 and its outlook for 2021. Prepared remarks by Robert J. Anderson, President and Chief Executive Officer, Mark Lumpkin, Jr., Executive Vice President and Chief Financial Officer and Steven C. Collins, Executive Vice President, Operations, will be followed by a question-and-answer session.

Investors and analysts are invited to participate in the call by dialing 877-407-6184 for domestic calls or 201-389-0877 for international calls, in both cases asking for the Earthstone conference call. A webcast will also be available through the Company's website (www.earthstoneenergy.com). Please select "Events & Presentations" under the "Investors" section of the Company's website and log on at least 10 minutes in advance to register.

A replay of the call will be available on the Company's website and by telephone until 10:00 a.m. Eastern (9:00 a.m. Central), Thursday, March 25, 2021. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13717242.

About Earthstone Energy, Inc.

Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in acquisition, development and operation of oil and natural gas properties. The Company's assets are located in the Midland Basin of west Texas and the Eagle Ford trend of south Texas. Earthstone is listed on the NYSE under the symbol "ESTE". For more information, visit the Company's website at www.earthstoneenergy.com.

Forward-Looking Statements

This release 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 (the "Exchange Act"). 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," "guidance," "target," "potential," "possible," or "probable" or statements that certain actions, events or results "may," "will," "should," or "could" be taken, occur or be achieved. Forward-looking statements are based on current expectations and assumptions and analyses made by Earthstone and its management in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances that involve various risks and uncertainties that could cause actual results to differ materially from those reflected in the statements. These risks include, but are not limited to, those set forth in Earthstone's annual report on Form 10-K for the year ended December 31, 2020 and other Securities and Exchange Commission filings. Earthstone undertakes no obligation to revise or update publicly any forward-looking statements except as required by law.

(1) The basis differential price is between WTI Midland Argus Crude and the WTI NYMEX.

(2) The swap is between WTI Roll and the WTI NYMEX.

(3) The basis differential price is between W. Texas (WAHA) and the Henry Hub NYMEX.

Conference Call Details

Earthstone is hosting a conference call on Thursday, March 11, 2021 at 10:00 a.m. Eastern (9:00 a.m. Central) to discuss the Company's operations and financial results for the fourth quarter and full year 2020 and its outlook for 2021. Prepared remarks by Robert J. Anderson, President and Chief Executive Officer, Mark Lumpkin, Jr., Executive Vice President and Chief Financial Officer and Steven C. Collins, Executive Vice President, Operations, will be followed by a question-and-answer session.

Investors and analysts are invited to participate in the call by dialing 877-407-6184 for domestic calls or 201-389-0877 for international calls, in both cases asking for the Earthstone conference call. A webcast will also be available through the Company's website (www.earthstoneenergy.com). Please select "Events & Presentations" under the "Investors" section of the Company's website and log on at least 10 minutes in advance to register.

A replay of the call will be available on the Company's website and by telephone until 10:00 a.m. Eastern (9:00 a.m. Central), Thursday, March 25, 2021. The number for the replay is 877-660-6853 for domestic calls or 201-612-7415 for international calls, using Replay ID: 13717242.

About Earthstone Energy, Inc.

Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in acquisition, development and operation of oil and natural gas properties. The Company's assets are located in the Midland Basin of west Texas and the Eagle Ford trend of south Texas. Earthstone is listed on the NYSE under the symbol "ESTE". For more information, visit the Company's website at www.earthstoneenergy.com.

Forward-Looking Statements

This release 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 (the "Exchange Act"). 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," "guidance," "target," "potential," "possible," or "probable" or statements that certain actions, events or results "may," "will," "should," or "could" be taken, occur or be achieved. Forward-looking statements are based on current expectations and assumptions and analyses made by Earthstone and its management in light of experience and perception of historical trends, current conditions and expected future developments, as well as other factors appropriate under the circumstances that involve various risks and uncertainties that could cause actual results to differ materially from those reflected in the statements. These risks include, but are not limited to, those set forth in Earthstone's annual report on Form 10-K for the year ended December 31, 2020 and other Securities and Exchange Commission filings. Earthstone undertakes no obligation to revise or update publicly any forward-looking statements except as required by law.

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

(In thousands, except share and per share amounts)

December 31,

ASSETS 2020 2019

Current assets:

Cash $ 1,494 $ 13,822

Accounts receivable:

Oil, natural gas, and natural gas liquids 16,255 29,047 revenues

Joint interest billings and other, net ofallowance of $19 and $83 at December 31, 2020 and 7,966 6,672 2019, respectively

Derivative asset 7,509 8,860

Prepaid expenses and other current assets 1,509 1,867

Total current assets 34,733 60,268



Oil and gas properties, successful efforts method:

Proved properties 1,017,496 970,808

Unproved properties 233,767 260,271

Land 5,382 5,382

Total oil and gas properties 1,256,645 1,236,461



Accumulated depreciation, depletion and (291,213) (195,567) amortization

Net oil and gas properties 965,432 1,040,894



Other noncurrent assets:

Goodwill - 17,620

Office and other equipment, net of accumulateddepreciation of $3,675 and $3,180 at December 31, 931 1,311 2020 and 2019, respectively

Derivative asset 396 770

Operating lease right-of-use assets 2,450 3,108

Other noncurrent assets 1,315 1,572

TOTAL ASSETS $ 1,005,257 $ 1,125,543

LIABILITIES AND EQUITY

Current liabilities:

Accounts payable $ 6,232 $ 25,284

Revenues and royalties payable 27,492 35,815

Accrued expenses 16,504 19,538

Asset retirement obligation 447 308

Derivative liability 1,135 6,889

Advances 2,277 11,505

Operating lease liability 773 570

Finance lease liability 69 206

Other current liability 565 43

Total current liabilities 55,494 100,158



Noncurrent liabilities:

Long-term debt 115,000 170,000

Asset retirement obligation 2,580 1,856

Derivative liability 173 -

Deferred tax liability 14,497 15,154

Operating lease liability 1,840 2,539

Finance lease liability 5 85

Other noncurrent liabilities 132 -

Total noncurrent liabilities 134,227 189,634



Equity:

Preferred stock, $0.001 par value, 20,000,000 - - shares authorized; none issued or outstanding

Class A Common Stock, $0.001 par value,200,000,000 shares authorized; 30,343,421 and 30 29 29,421,131 issued and outstanding at December 31,2020 and 2019, respectively

Class B Common Stock, $0.001 par value,50,000,000 shares authorized; 35,009,371 and 35 35 35,260,680 issued and outstanding at December 31,2020 and 2019, respectively

Additional paid-in capital 540,074 527,246

Accumulated deficit (195,258) (181,711)

Total Earthstone Energy, Inc. equity 344,881 345,599

Noncontrolling interest 470,655 490,152

Total equity 815,536 835,751



TOTAL LIABILITIES AND EQUITY $ 1,005,257 $ 1,125,543



EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)

Three Months Ended

Years Ended

December 31,

December 31,

2020

2019

2020

2019

REVENUES

Oil

$

27,338

$

60,268

$

120,355

$

171,925

Natural gas

3,712

1,787

8,567

3,913

Natural gas liquids

5,625

4,733

15,601

15,424

Total revenues

36,675

66,788

144,523

191,262

OPERATING COSTS AND EXPENSES

Lease operating expense

7,160

8,198

29,131

28,683

Production and ad valorem taxes

2,213

3,870

9,411

11,871

Rig idle and termination expense

-

-

426

-

Impairment expense

1,950

-

64,498

-

Depreciation, depletion and amortization

20,318

26,962

96,414

69,243

General and administrative expense

8,618

7,664

28,233

27,611

Transaction costs

946

279

622

1,077

Accretion of asset retirement obligation

170

54

307

214

Exploration expense

-

653

298

653

Total operating costs and expenses

41,375

47,680

229,340

139,352

Gain on sale of oil and gas properties, net

6

3,668

204

3,222

(Loss) income from operations

(4,694)

22,776

(84,613)

55,132

OTHER INCOME (EXPENSE)

Interest expense, net

(1,025)

(1,831)

(5,232)

(6,566)

Write-off of deferred financing costs

-

(1,242)

-

(1,242)

(Loss) gain on derivative contracts, net

(13,166)

(24,311)

59,899

(43,983)

Other income (expense), net

280

(95)

400

(96)

Total other (expense) income

(13,911)

(27,479)

55,067

(51,887)

(Loss) income before income taxes

(18,605)

(4,703)

(29,546)

3,245

Income tax benefit (expense)

224

(937)

112

(1,665)

Net (loss) income

(18,381)

(5,640)

(29,434)

1,580

Less: Net (loss) income attributable to noncontrolling interest

(9,910)

(3,016)

(15,887)

861

Net (loss) income attributable to Earthstone Energy, Inc.

$

(8,471)

$

(2,624)

$

(13,547)

$

719

Net (loss) income per common share attributable to Earthstone Energy, Inc.:

Basic

$

(0.28)

$

(0.09)

$

(0.45)

$

0.02

Diluted

$

(0.28)

$

(0.09)

$

(0.45)

$

0.02

Weighted average common shares outstanding:

Basic

30,212,191

29,278,455

29,911,625

28,983,354

Diluted

30,212,191

29,278,455

29,911,625

29,360,885

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)

(In thousands, except share and per share amounts)

Three Months Ended Years Ended

December 31, December 31,

2020 2019 2020 2019

REVENUES

Oil $ 27,338 $ 60,268 $ 120,355 $ 171,925

Natural gas 3,712 1,787 8,567 3,913

Natural gas liquids 5,625 4,733 15,601 15,424

Total revenues 36,675 66,788 144,523 191,262



OPERATING COSTS AND EXPENSES

Lease operating 7,160 8,198 29,131 28,683 expense

Production and ad 2,213 3,870 9,411 11,871 valorem taxes

Rig idle and - - 426 - termination expense

Impairment expense 1,950 - 64,498 -

Depreciation,depletion and 20,318 26,962 96,414 69,243 amortization

General andadministrative 8,618 7,664 28,233 27,611 expense

Transaction costs 946 279 622 1,077

Accretion of asset 170 54 307 214 retirement obligation

Exploration expense - 653 298 653

Total operating costs 41,375 47,680 229,340 139,352 and expenses



Gain on sale of oiland gas properties, 6 3,668 204 3,222 net



(Loss) income from (4,694) 22,776 (84,613) 55,132 operations



OTHER INCOME (EXPENSE)

Interest expense, net (1,025) (1,831) (5,232) (6,566)

Write-off of deferred - (1,242) - (1,242) financing costs

(Loss) gain onderivative contracts, (13,166) (24,311) 59,899 (43,983) net

Other income 280 (95) 400 (96) (expense), net

Total other (expense) (13,911) (27,479) 55,067 (51,887) income



(Loss) income before (18,605) (4,703) (29,546) 3,245 income taxes

Income tax benefit 224 (937) 112 (1,665) (expense)

Net (loss) income (18,381) (5,640) (29,434) 1,580



Less: Net (loss)income attributable (9,910) (3,016) (15,887) 861 to noncontrollinginterest



Net (loss) incomeattributable to $ (8,471) $ (2,624) $ (13,547) $ 719 Earthstone Energy,Inc.



Net (loss) income percommon shareattributable to Earthstone Energy,Inc.:

Basic $ (0.28) $ (0.09) $ (0.45) $ 0.02

Diluted $ (0.28) $ (0.09) $ (0.45) $ 0.02



Weighted averagecommon shares outstanding:

Basic 30,212,191 29,278,455 29,911,625 28,983,354

Diluted 30,212,191 29,278,455 29,911,625 29,360,885

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

For the Years Ended December 31,

2020

2019

Cash flows from operating activities:

Net (loss) income

$

(29,434)

$

1,580

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Impairment of proved and unproved oil and gas properties

46,878

-

Depreciation, depletion and amortization

96,414

69,243

Accretion of asset retirement obligations

307

214

Impairment of Goodwill

17,620

-

Gain on sale of oil and gas properties, net

(204)

(3,222)

Settlement of asset retirement obligations

(195)

(374)

Total (gain) loss on derivative contracts, net

(59,899)

43,983

Operating portion of net cash received in settlement of derivative contracts

56,044

15,866

Stock-based compensation

10,054

8,648

Deferred income taxes

(657)

1,665

Write-off of deferred financing costs

-

1,242

Amortization of deferred financing costs

322

412

Changes in assets and liabilities:

(Increase) decrease in accounts receivable

11,914

(18,035)

(Increase) decrease in prepaid expenses and other current assets

(203)

66

Increase (decrease) in accounts payable and accrued expenses

481

(10,438)

Increase (decrease) in revenues and royalties payable

(8,323)

7,067

Increase (decrease) in advances

(9,617)

8,331

Net cash provided by operating activities

131,502

126,248

Cash flows from investing activities:

Additions to oil and gas properties

(88,097)

(204,268)

Additions to office and other equipment

(114)

(527)

Proceeds from sales of oil and gas properties

414

4,184

Net cash used in investing activities

(87,797)

(200,611)

Cash flows from financing activities:

Proceeds from borrowings

136,056

234,680

Repayments of borrowings

(191,056)

(143,508)

Cash paid related to the exchange and cancellation of Class A Common Stock

(836)

(1,135)

Cash paid for finance leases

(130)

(392)

Deferred financing costs

(67)

(1,836)

Net cash (used in) provided by financing activities

(56,033)

87,809

Net increase (decrease) in cash

(12,328)

13,446

Cash at beginning of period

13,822

376

Cash at end of period

$

1,494

$

13,822

Supplemental disclosure of cash flow information

Cash paid for:

Interest

$

4,588

$

6,405

Non-cash investing and financing activities:

Accrued capital expenditures

$

7,328

$

28,356

Lease asset additions - ASC 842

$

-

$

3,722

Asset retirement obligations

$

762

$

105

Earthstone Energy, Inc. Non-GAAP Financial Measures Unaudited

The non-GAAP financial measures of Adjusted Diluted Shares, Adjusted EBITDAX, Adjusted Net Income, All-In Cash Costs, Free Cash Flow and Operating Margin per Boe, as defined and presented below, are intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). Further, these non-GAAP measures should only be considered in conjunction with financial statements and disclosures prepared in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP measures, such as net income or loss, operating income or loss or any other GAAP measure of financial position or results of operations. Adjusted EBITDAX and Adjusted Net Income are presented herein and reconciled from the GAAP measure of net (loss) income because of its wide acceptance by the investment community as a financial indicator.

I. Adjusted Diluted Shares

We define "Adjusted Diluted Shares" as the weighted average shares of Class A Common Stock - Diluted outstanding plus the weighted average shares of Class B Common Stock outstanding.

Our Adjusted Diluted Shares measure provides a comparable per share measurement when presenting results such as Adjusted EBITDAX and Adjusted Net Income that include the interests of both Earthstone and the noncontrolling interest. Adjusted Diluted Shares is used in calculating several metrics that we use as supplemental financial measurements in the evaluation of our business, none of which should be considered as an alternative to, or more meaningful than, net income as an indicator of operating performance.

Adjusted Diluted Shares for the periods indicated:

EARTHSTONE ENERGY, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(In thousands)

For the Years Ended December 31,

2020 2019

Cash flows from operating activities:

Net (loss) income $ (29,434) $ 1,580

Adjustments to reconcile net (loss) income to net cash provided by operating activities:

Impairment of proved and unproved oil and gas 46,878 - properties

Depreciation, depletion and amortization 96,414 69,243

Accretion of asset retirement obligations 307 214

Impairment of Goodwill 17,620 -

Gain on sale of oil and gas properties, net (204) (3,222)

Settlement of asset retirement obligations (195) (374)

Total (gain) loss on derivative contracts, net (59,899) 43,983

Operating portion of net cash received in settlement 56,044 15,866 of derivative contracts

Stock-based compensation 10,054 8,648

Deferred income taxes (657) 1,665

Write-off of deferred financing costs - 1,242

Amortization of deferred financing costs 322 412

Changes in assets and liabilities:

(Increase) decrease in accounts receivable 11,914 (18,035)

(Increase) decrease in prepaid expenses and other (203) 66 current assets

Increase (decrease) in accounts payable and accrued 481 (10,438) expenses

Increase (decrease) in revenues and royalties (8,323) 7,067 payable

Increase (decrease) in advances (9,617) 8,331

Net cash provided by operating activities 131,502 126,248

Cash flows from investing activities:

Additions to oil and gas properties (88,097) (204,268)

Additions to office and other equipment (114) (527)

Proceeds from sales of oil and gas properties 414 4,184

Net cash used in investing activities (87,797) (200,611)

Cash flows from financing activities:

Proceeds from borrowings 136,056 234,680

Repayments of borrowings (191,056) (143,508)

Cash paid related to the exchange and cancellation (836) (1,135) of Class A Common Stock

Cash paid for finance leases (130) (392)

Deferred financing costs (67) (1,836)

Net cash (used in) provided by financing activities (56,033) 87,809

Net increase (decrease) in cash (12,328) 13,446

Cash at beginning of period 13,822 376

Cash at end of period $ 1,494 $ 13,822

Supplemental disclosure of cash flow information

Cash paid for:

Interest $ 4,588 $ 6,405

Non-cash investing and financing activities:

Accrued capital expenditures $ 7,328 $ 28,356

Lease asset additions - ASC 842 $ - $ 3,722

Asset retirement obligations $ 762 $ 105

Earthstone Energy, Inc. Non-GAAP Financial Measures Unaudited

The non-GAAP financial measures of Adjusted Diluted Shares, Adjusted EBITDAX, Adjusted Net Income, All-In Cash Costs, Free Cash Flow and Operating Margin per Boe, as defined and presented below, are intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP"). Further, these non-GAAP measures should only be considered in conjunction with financial statements and disclosures prepared in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP measures, such as net income or loss, operating income or loss or any other GAAP measure of financial position or results of operations. Adjusted EBITDAX and Adjusted Net Income are presented herein and reconciled from the GAAP measure of net (loss) income because of its wide acceptance by the investment community as a financial indicator.

I. Adjusted Diluted Shares

We define "Adjusted Diluted Shares" as the weighted average shares of Class A Common Stock - Diluted outstanding plus the weighted average shares of Class B Common Stock outstanding.

Our Adjusted Diluted Shares measure provides a comparable per share measurement when presenting results such as Adjusted EBITDAX and Adjusted Net Income that include the interests of both Earthstone and the noncontrolling interest. Adjusted Diluted Shares is used in calculating several metrics that we use as supplemental financial measurements in the evaluation of our business, none of which should be considered as an alternative to, or more meaningful than, net income as an indicator of operating performance.

Adjusted Diluted Shares for the periods indicated:

Three Months Ended Years Ended

December 31, December 31,

2020 2019 2020 2019

Class A Common Stock - 30,212,191 29,278,455 29,911,625 29,360,885 Diluted

Class B Common Stock 35,009,371 35,288,526 35,077,711 35,395,021

Adjusted Diluted Shares 65,221,562 64,566,981 64,989,336 64,755,906

II. Adjusted EBITDAX

The non-GAAP financial measure of Adjusted EBITDAX (as defined below), as calculated by us below, is intended to provide readers with meaningful information that supplements our financial statements prepared in accordance with GAAP. Further, this non-GAAP measure should only be considered in conjunction with financial statements and disclosures prepared in accordance with GAAP and should not be considered in isolation or as a substitute for GAAP measures, such as net income or loss, operating income or loss or any other GAAP measure of financial position or results of operations. Adjusted EBITDAX is presented herein and reconciled from the GAAP measure of net (loss) income because of its wide acceptance by the investment community as a financial indicator.

We define "Adjusted EBITDAX" as net (loss) income plus, when applicable, accretion of asset retirement obligations; impairment expense; depletion, depreciation and amortization; interest expense, net; transaction costs; (gain) loss on sale of oil and gas properties, net; exploration expense; unrealized loss (gain) on derivative contracts; stock-based compensation (non-cash); and income tax expense.

Our Adjusted EBITDAX measure provides additional information that may be used to better understand our operations. Adjusted EBITDAX is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net (loss) income as an indicator of operating performance. Certain items excluded from Adjusted EBITDAX are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted EBITDAX, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that Adjusted EBITDAX is a widely followed measure of operating performance and is one of many metrics used by our management team and by other users of our consolidated financial statements. For example, Adjusted EBITDAX can be used to assess our operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure and to assess the financial performance of our assets and our company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of Net (loss) income to Adjusted EBITDAX for the periods indicated:

($000s) Three Months Ended Years Ended

December 31, December 31,

2020 2019 2020 2019

Net (loss) income $ (18,381) $ (5,640) $ (29,434) $ 1,580

Accretion of asset 170 54 307 214 retirement obligations

Impairment expense 1,950 - 64,498 -

Depletion, depreciation 20,318 26,962 96,414 69,243 and amortization

Interest expense, net 1,025 1,831 5,232 6,566

Transaction costs 946 279 622 1,077

Gain on sale of oil and (6) (3,668) (204) (3,222) gas properties, net

Rig idle and - - 426 - termination expense

Exploration expense - 653 298 653

Unrealized loss (gain) 21,611 26,517 (3,855) 59,849 on derivative contracts

Stock-basedcompensation (non-cash) 2,389 1,968 10,054 8,648 ^(1)

Income tax (benefit) (224) 937 (112) 1,665 expense

Adjusted EBITDAX $ 29,798 $ 49,893 $ 144,246 $ 146,273

(1)Included in General and administrative expense in the Condensed Consolidated Statements of Operations.

III. Adjusted Net Income

We define "Adjusted Net Income" as net (loss) income plus, when applicable, unrealized loss (gain) on derivative contracts; impairment expense; (gain) loss on sale of oil and gas properties; write-off of deferred financing costs; transaction costs; and the associated changes in estimated income tax.

Our Adjusted Net Income measure provides additional information that may be used to further understand our operations. Adjusted Net Income is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net (loss) income as an indicator of operating performance. Certain items excluded from Adjusted Net Income are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted Net Income, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that Adjusted Net Income is a widely followed measure of operating performance and is one of many metrics used by our management team and by other users of our consolidated financial statements. For example, Adjusted Net Income can be used to assess our operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure and to assess the financial performance of our assets and our company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of Net (loss) income to Adjusted Net Income for the periods indicated:

Included in General and administrative expense in the Condensed(1) Consolidated Statements of Operations.

III. Adjusted Net Income

We define "Adjusted Net Income" as net (loss) income plus, when applicable, unrealized loss (gain) on derivative contracts; impairment expense; (gain) loss on sale of oil and gas properties; write-off of deferred financing costs; transaction costs; and the associated changes in estimated income tax.

Our Adjusted Net Income measure provides additional information that may be used to further understand our operations. Adjusted Net Income is one of several metrics that we use as a supplemental financial measurement in the evaluation of our business and should not be considered as an alternative to, or more meaningful than, net (loss) income as an indicator of operating performance. Certain items excluded from Adjusted Net Income are significant components in understanding and assessing a company's financial performance, such as a company's cost of capital and tax structure, as well as the historic cost of depreciable and depletable assets. Adjusted Net Income, as used by us, may not be comparable to similarly titled measures reported by other companies. We believe that Adjusted Net Income is a widely followed measure of operating performance and is one of many metrics used by our management team and by other users of our consolidated financial statements. For example, Adjusted Net Income can be used to assess our operating performance and return on capital in comparison to other independent exploration and production companies without regard to financial or capital structure and to assess the financial performance of our assets and our company without regard to capital structure or historical cost basis.

The following table provides a reconciliation of Net (loss) income to Adjusted Net Income for the periods indicated:

($000s, except per Three Months Ended Years Endedshare data)

December 31, December 31,

2020 2019 2020 2019

Net (loss) income $ (18,381) $ (5,640) $ (29,434) $ 1,580

Unrealized loss(gain) on derivative 21,611 26,517 (3,855) 59,849 contracts

Impairment expense 1,950 - 64,498 -

Gain on sale of oil (6) (3,668) (204) (3,222) and gas properties

Write-off of deferred - 1,242 - 1,242 financing costs

Transaction costs 946 279 622 1,077

Income tax effect of (298) (500) (1,611) (1,210) the above

Adjusted Net Income $ 5,822 $ 18,230 $ 30,016 $ 59,316

Adjusted Diluted 65,221,562 64,566,981 64,989,336 64,755,906 Shares

Adjusted Net Incomeper Adjusted Diluted $ 0.09 $ 0.28 $ 0.46 $ 0.92 Share

IV. All-In Cash Costs

We define "All-In Cash Costs" as lease operating expenses plus production and ad valorem taxes, interest expense and general and administrative expense (excluding stock-based compensation).

Our All-In Cash Costs measure provides additional information that may be used to further understand our total cost of production. We use All-In Cash Costs as a supplemental financial measurement in the evaluation of our operational performance. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating our results. All-In Cash Costs should not be considered as an alternative to, or more meaningful than, net (loss) income as an indicator of operating performance. All-In Cash Costs, as used by us, may not be comparable to similarly titled measures reported by other companies.

All-In Cash Costs for the periods indicated:

($000s, except per Boe data) Three Months Ended Years Ended

December 31, December 31,

2020 2019 2020 2019

Lease operating expense $ 7,160 $ 8,198 $ 29,131 $ 28,683

Production and ad valorem 2,213 3,870 9,411 11,871 taxes

Interest expense, net 1,025 1,831 5,232 6,566

General and administrativeexpense (excluding 6,229 5,696 18,179 18,963 stock-based compensation)

All-In Cash Costs $ 16,627 $ 19,595 $ 61,953 $ 66,083

Total production (MBoe)^(1) 1,362 1,617 5,591 4,902 (2)

All-In Cash Costs per Boe $ 12.20 $ 12.12 $ 11.08 $ 13.48

(1)

Represents reported sales volumes.

(2)

Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equals one barrel of oil equivalent (Boe).

V. Free Cash Flow

Free cash flow is a measure that we use as an indicator of our ability to fund our development activities. We define free cash flow as Adjusted EBITDAX (defined above), less interest expense, less accrual-based capital expenditures.

(1) Represents reported sales volumes.

(2) Barrels of oil equivalent have been calculated on the basis of six thousand cubic feet (Mcf) of natural gas equals one barrel of oil equivalent (Boe).

V. Free Cash Flow

Free cash flow is a measure that we use as an indicator of our ability to fund our development activities. We define free cash flow as Adjusted EBITDAX (defined above), less interest expense, less accrual-based capital expenditures.

($000s) Three Months Ended Years Ended

December 31, December 31,

2020 2019 2020 2019

Adjusted EBITDAX $ 29,798 $ 49,893 $ 144,246 $ 146,273

Interest expense, net (1,025) (1,831) (5,232) (6,566)

Capital expenditures (accrual (20,346) (58,032) (66,788) (210,430) basis)

Free Cash Flow $ 8,427 $ (9,970) $ 72,226 $ (70,723)

VI. Operating Margin per Boe and Operating Margin per Boe (including realized hedge settlements)

Operating Margin per Boe is a non-GAAP financial measure that we use to evaluate our operating performance on a per Boe basis. We define Operating Margin per Boe as average realized price per Boe minus lease operating expense per BOE and production and ad valorem taxes per Boe. Operating Margin per Boe (including realized hedge settlements) is calculated as the sum of Operating Margin per Boe and Realized hedge settlements per Boe.

Our Operating Margin per Boe measure provides additional information that may be used to further understand our operating margins. We use Operating Margin per Boe as a supplemental financial measurement in the evaluation of our operational performance. We believe that investors benefit from having access to the same financial measures that our management uses in evaluating our results. Operating Margin per Boe should not be considered as an alternative to, or more meaningful than, net (loss) income as an indicator of operating performance. Operating Margin per Boe, as used by us, may not be comparable to similarly titled measures reported by other companies.

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CONTACT: Mark Lumpkin, Jr. Executive Vice President - Chief Financial Officer Earthstone Energy, Inc. 1400 Woodloch Forest Drive, Suite 300 The Woodlands, TX 77380 281-298-4246 mark.lumpkin@earthstoneenergy.com Scott Thelander Vice President of Finance Earthstone Energy, Inc. 1400 Woodloch Forest Drive, Suite 300 The Woodlands, TX 77380 281-298-4246 scott@earthstoneenergy.com