Earthstone Energy, Inc.

Good morning and welcome to Earthstone Energy's conference call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference call is being recorded. Joining us today from Earthstone are Robert Anderson, President and Chief Executive Officer, Mark Lumpkin, Executive Vice President and Chief Financial Officer, Steve Collins, Executive Vice President and Chief Operating Officer, and Scott Thelander, Vice President of Finance. Mr. Thelander, you may begin.

Thank you, and welcome to our fourth quarter and full year 2021 conference call. Before we get started, I would like to remind you that today's call will contain forward-looking statements within the meaning of federal securities laws. Although management believes these statements are based on reasonable expectations, they can give no assurance that they will prove to be correct. These statements are subject to certain risks, uncertainties, and assumptions as described in our fourth quarter and full year 2021 earnings announcement and in our annual report for 2021 on Form 10-K. These documents can be found in the investor section of our website, www.earthstoneenergy.com. Should one or more of these risks materialize or should underlying assumptions prove incorrect, actual results may vary materially. This conference call also includes references to certain non-GAAP financial measures. Reconciliations of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in our earnings announcement issued yesterday. Today's call will begin with comments from Robert Anderson, our CEO, followed by remarks from Steve Collins, our COO, and Mark Lumpkin, our CFO, and then we'll have some closing comments from Robert. I'll now turn the call over to Robert.

Thanks, Scott, and good morning, everyone. We appreciate you joining us today for our fourth quarter and full year 2021 conference call. It has been a few months since we last spoke to you, and we have been pretty busy since then continuing our corporate strategy of creating shareholder value through accretive acquisitions, organically growing with the drill bit, managing our balance sheet, and delivering strong financial results. The dedication of all our employees is evident by the results delivered in the fourth quarter and for the full year 2021 and so far in 2022 as well, including what is now a total of six acquisitions that were closed or announced. And my gratitude goes out to all of our employees for what we have accomplished. We continue to demonstrate our ability to acquire and integrate accretive and well-located assets that generate meaningful production and cash flow and continue to drive down our overall cash costs. With the Chisholm acquisition behind us now, we have closed five acquisitions since the start of 2021, not including the pending acquisition of Bighorn, which is expected to close in mid-April, and we're extremely pleased with the results. Our high level of acquisition activity positions us to achieve our goals of being a much larger scaled, low cost producer with a more robust, high margin drilling inventory and lower reinvestment needed in order to maintain combined production levels. We are truly transforming Earthstone into a bigger and better company that is built to last. As we look ahead to 2022, we remain focused on integrating these assets, generating substantial free cash flow, continuing to strengthen our balance sheet and identifying operational synergies. As planned, we closed on the Delaware Basin acquisition, our largest deal closed to date, in mid-February. We've already begun integrating these assets and are excited about what this means for our daily production rate and free cash flow generation capacity. These assets expand our operations into the Delaware Basin, generate significant production and cash flow from existing wells, and with us now running two rigs in the Delaware Basin, further unlock the potential of this acreage. Importantly, the Delaware Basin assets provide us with the opportunity for additional growth thanks to a high return drilling inventory that consists of over 414 gross operated drilling locations. Additionally, we are on track to close on our Bighorn acquisition in mid-April and excited about the impact this asset will have on our company. This will be the latest in a series of highly accretive acquisitions, with Bighorn being the largest in terms of both incremental production and incremental cash flow. Also, given the low decline rate and maturity of these assets, we anticipate additional capital investment on this acreage to be relatively low, and we have identified areas where operating synergies could further reduce lease operating expenses as there is overlap with our existing assets. With the Bighorn assets included, we will have more than quadrupled our daily production rate and should end 2022 approaching 80,000 BOE per day, with a greatly expanded acreage footprint and all of this achieved over the past year and a half. We expect that this additional production, our four-rig drilling program, and the strong commodity prices to enable us to generate significant free cash flow while only reinvesting about half of our EBITDAX. The magnitude of our future cash flow generation gives us some flexibility as well to consider a number of uses for our free cash flow, including debt reduction, further acquisitions, and may include shareholder returns. As I mentioned, the two most recent acquisitions that we've announced are the largest in our company's history. However, with our success in using equity and cash and structuring the consideration of these acquisitions, we remain positioned to be below our targeted one-time debt-to-EBITDA leverage ratio by year-end 2022. We're proud of the continued strength of our balance sheet, and we won't consider transactions that would jeopardize this strength. While we continue to pursue potential acquisitions opportunities that fit our criteria, the size of our latest deals dictate that we make efficient integration a high priority in the near term, and you'll hear more about that. Steve will provide some additional details on our integration and our drilling activities in a moment, but first I just want to touch on our capital budget. As a reminder, we continue to run two rigs in the Midland Basin and are now running two rigs in the Delaware Basin. We plan to continue this pace in both basins given our strong drilling inventory and cash flows. We are currently allocating a capital budget of $410 to $440 million for 2022 to operate our four-rig program which generates substantial free cash flow. Our capital budget also accounts for some of the cost pressures that we are continuing to experience and expect for the foreseeable future. We expect that cost inflation will remain a challenge, and although our team has been doing a great job of working to mitigate these impacts with operational efficiencies, the impacts are real, but they are manageable. Now with that, I'd like to turn it over to Steve Collins to provide an update on operations.