Earthstone Energy, Inc.

Good afternoon and welcome to Earthstone Energy's second quarter 2023 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 call, 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. I will now turn the call over to Clay Jassone, Director of Investor Relations. Thank you. You may begin.

Thank you, and welcome to our second quarter 2023 earnings conference call. Before we get started, I'd like to remind you that today's call will contain forward-looking statements within the meanings of federal securities law. Although management believes these statements are based on reasonable expectations, they can give no assurances that they will prove to be correct. These statements are subject to certain risks, uncertainties, and assumptions, as described in our annual report on Form 10-K for the year ended December 31, 2022, a quarterly report on Form 10-Q for the quarter ended June 30, 2023, and the second quarter of 2023 earnings announcement. These documents can be found in the investor relations sections of our website at 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. Reconciliation of these non-GAAP financial measures to the most directly comparable measure under GAAP are contained in our earnings announcement issued yesterday. Also, please note information recorded on this call speaks only as of today, August 3, 2023. Therefore, any time-sensitive information may no longer be accurate at the time of any replay listening or transcript reading. Today's call will begin with comments from Robert Anderson, our president and 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 turn the call over to Robert.

Hey, thanks, Clay, and good afternoon, everyone. Thank you for taking time to join us on what has been probably a very busy day for you all. Earthstone's operational excellence continued during the second quarter, with production setting record levels for the company. We reported second quarter production over 105,000 BOE per day, with the oil component of our second quarter production over 44,000 barrels per day. We have now had three quarters in a row with production approaching or exceeding 105,000 BOE per day. This record level of production volume has us now tracking well above our original standalone full year's guidance. Our low decline, stable production base, and strong new well results drove our production outperformance for the quarter. This record setting production level once again continues to showcase the quality and productivity of our inventory and the strength of our underlying asset base. Steve will highlight several wells that drove our strong quarterly outperformance here in a minute. The execution of our disciplined operating plan and the strength of our operational performance translated directly into strong quarterly financial performance, culminating in approximately $239 million of adjusted EBITDAX and about $42 million of free cash flow for the quarter. Over the past few years, we strategically positioned the company as a significant operator in the Permian Basin with more than $2.5 billion of acquisitions completed. A key piece of our strategy has been the initial entrance into the northern Delaware Basin in February of 2022 through the acquisition of Chisholm and the addition to that position with the acquisition of Titus last August. For the past 12 months, we have been searching for the next complementary asset acquisition to our New Mexico deals while we integrated and executed on our development plan. This quarter's results really show what we can do with these assets. Our recent announcement and pending close of the Novo acquisition supplements this strategy, with our asset base shifting further to focus on the prolific Northern Delaware Basin, to which the large majority of our capital activity will be dedicated going forward. With four of our five rigs focused on the Northern Delaware Basin, we expect to see continued improvement in capital efficiency. We believe the Novo transaction has all the right qualities to add significant shareholder value for Earthstone and all of our stakeholders. I just want to spend a few minutes highlighting several of those qualities. First, we are high grading and deepening our portfolio of future inventory in the premier northern Delaware basin. Novo adds 200 high return, de-risked, low break-even, oily drilling locations. Upon closing, we will hold over 1,000 future drilling locations with approximately two-thirds of those in the highly economic Lee and Eddy counties of New Mexico. We currently estimate an inventory life of approximately 13 years at our current rig pace, providing years of high-quality drilling inventory and future profitable growth for Earthstone. Second, NOVO significantly enhances our scale and operational synergies. We estimate fourth quarter production in the range of 130,000 to 135,000 BOE per day. This represents an increase of nearly 30% growth compared to our second quarter reported volumes. This production level will propel us into being one of the top producers in the Permian's mid-cap group. The proximity of this asset to our existing assets should allow for synergies with a constant focus on operating efficiencies and costs. Third, Novo increases our financial scale. Looking into 2024, the Novo transaction will meaningfully increase Earthstone's financial scale through higher EBITDAX, but perhaps even more so, a significant expected increase in our free cash flow generation as we intend to maintain our five-rig drilling program. We expect free cash flow to increase by more than 60% in 2024 as compared to our Earthstone standalone plans before we agree to acquire Novo. Fourth, we will maintain our financial strength and low leverage profiles. Even though we will finance the transaction with all cash and we will not issue equity, we will not sacrifice the balance sheet. As stated when we announced the acquisition, in the fourth quarter, being the first full quarter with Novo, we expect to meet a forecasted 1.1 time leverage ratio based on the last quarter annualized adjusted EBITX. And we expect a further deleverage to below one time debt to adjusted EBITX in 2024. And finally, we will create a stronger, more resilient earthstone. The NOVO transaction will meaningfully strengthen our operational and financial base. We will have over 223,000 net acres in the Permian Basin with proved reserves of 460 million barrels of oil equivalent. Upon closing, we will have a production profile of over 130,000 BOE per day and an inventory of over 1,000 locations representing approximately 13 years of drilling inventory at our current five rig pace. All of these factors lead to generating significant free cash flow longer, making Earthstone stronger and more resilient. Given the profile of the Novo transaction, we strongly believe this is a value-creating transaction for Earthstone. We will continue to focus on the small things that make a difference in our business as well. For instance, we have divested over $100 million of non-core assets in the past year, including more than $50 million in the second quarter of this year. This continued housekeeping will improve our margins and streamline our operations. Lastly, I want to highlight our inaugural sustainability report, which was published last week and can be found on our website. We are committed to providing ESG-related information and metrics to our shareholders and other stakeholders. With that, I turn the call over to Steve to provide an update on our operations.