EARTHSTONE ENERGY INC - Quarter Report: 2013 June (Form 10-Q)

Delaware (State of Incorporation or Organization)

84-0592823 (I.R.S. Employer Identification No.)

 

633 17th Street, Suite 2320, Denver, Colorado (Address of principal executive office)

80202-3619 (Zip Code)

 

(303) 296-3076 (Registrant’s telephone number, including area code)

	PART I. FINANCIAL INFORMATION	Page
Item 1.	Financial Statements
	Condensed Consolidated Balance Sheets:
	June 30, 2013 (Unaudited) and March 31, 2013	5
	Condensed Consolidated Statements of Operations:
	Three Months Ended June 30, 2013 and 2012 (Unaudited)	7
	Condensed Consolidated Statements of Cash Flows:
	Three Months Ended June 30, 2013 and 2012 (Unaudited)	8
	Notes to Unaudited Condensed Consolidated Financial Statements:
	June 30, 2013	9
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures	19
	PART II. OTHER INFORMATION
Item 1.	Legal Proceedings	20
Item 1A.	Risk Factors	20
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	20
Item 3.	Defaults Upon Senior Securities	20
Item 4.	Mine Safety Disclosures	20
Item 5.	Other Information	20
Item 6.	Exhibits	21
	Signatures	22

●	our strategies, either existing or anticipated;

●	our future financial position, including anticipated liquidity;

●	our ability to satisfy obligations from cash generated from operations;

●	amounts and nature of future capital expenditures, including future share repurchases;

●	acquisitions and other business opportunities;

●	operating costs and other expenses, including asset retirement obligation expenses;

●	wells expected to be drilled, other anticipated exploration efforts and associated expenses;

●	estimates of proved oil and natural gas reserves, deferred tax assets, and depletion rates;

●	our ability to meet additional acreage, seismic and/or drilling cost requirements;

●	other estimates and assumptions we use in our accounting policies.

●	loss of senior management or technical personnel;

●	oil and natural gas prices and production costs;

●	our ability to replace oil and natural gas reserves, including changes in reserve estimates resulting from expected oil and gas prices, production rates, tax rates and production costs;

●

our ability to remain in compliance with the financial covenants related to our Credit Facility may be affected by events beyond our control, including market prices for our oil and gas.  Any future inability to comply with these covenants, unless waived by the Bank, could adversely affect our liquidity by rendering us unable to borrow further under the Credit Facility.

●	exploitation, development, production and exploration results, including mechanical failure;

●	the estimated costs of asset retirement obligations, including whether or not those retirement costs, in whole or in part, are ever actually incurred in the future;

●	the potential unavailability of drilling rigs and other field equipment and services;

●	the existence of unanticipated liabilities relating to existing properties or those acquired in the future, including environmental liabilities;

●	factors affecting the nature and timing of our capital expenditures, including the availability of service contractors and equipment;

●	the willingness and ability of third parties to honor their contractual commitments;

●	permitting issues;

●	the nature, extent and duration of workovers;

●	the impact and costs related to compliance with or changes in laws governing our operations;

●	acquisitions and other business opportunities (or the lack thereof) that may be pursued by us;

●	competition for properties and the effect of such competition on the price of those properties;

●	economic, market or business conditions, including any change in interest rates or inflation;

●	the lack of available capital and financing;

●	risk factors consistent with comparable companies within our industry, especially companies  with similar market capitalization and/or employee census; and

●	weather and other factors, many of which are beyond our control.

 

 

 

		June 30,				March 31,
		2013				2013
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	2,202,000			$	2,180,000
Accounts receivable:
Oil and gas sales			2,833,000				3,055,000
Joint interest and other receivables
net of allowance of ($38,000) at June 30, 2013 and March 31, 2013			131,000				328,000
Other current assets			780,000				814,000
Total current assets			5,946,000				6,377,000
Oil and gas properties, full cost method:
Proved properties			58,374,000				53,265,000
Unproved properties			1,687,000				2,156,000
Accumulated depletion and impairment			(28,488,000	)			(27,729,000	)
Net oil and gas properties			31,573,000				27,692,000
Support equipment and other non-current assets
net of accumulated depreciation of ($442,000) and ($416,000), respectively			729,000				611,000
Total non-current assets			32,302,000				28,303,000
Total assets		$	38,248,000			$	34,680,000

		June 30,				March 31,
		2013				2013
		(Unaudited)
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	2,099,000			$	1,631,000
Accrued liabilities			5,129,000				3,971,000
Total current liabilities			7,228,000				5,602,000
Long-term liabilities:
Long-term debt			5,000,000				4,000,000
Deferred tax liability			3,110,000				2,971,000
Asset retirement obligation, less current portion			1,872,000				1,809,000
Total long-term liabilities			9,982,000				8,780,000
Total liabilities			17,210,000				14,382,000
Shareholders’ equity:
Preferred shares, $0.001 par value, 600,000 authorized			-				-
and none issued or outstanding
Common shares, $0.001 par value, 6,400,000 shares authorized and			18,000				18,000
1,814,000 and 1,802,000 shares issued, respectively
Additional paid-in capital			23,325,000				23,278,000
Treasury stock, at cost, 82,000 shares			(457,000	)			(457,000	)
Accumulated deficit			(1,848,000	)			(2,541,000	)
Total shareholders’ equity			21,038,000				20,298,000
Total liabilities and shareholders’ equity		$	38,248,000			$	34,680,000

		Three Months Ended
		June 30,
		2013				2012
Revenues:
Oil and gas sales		$	3,582,000			$	2,220,000
Well service and water-disposal revenue			13,000				127,000
Total revenues			3,595,000				2,347,000
Expenses:
Oil and gas production			835,000				834,000
Production tax			309,000				196,000
Well service and water-disposal			37,000				23,000
Depletion and depreciation			786,000				294,000
Accretion of asset retirement obligation			49,000				43,000
General and administrative			693,000				681,000
Total expenses			2,709,000				2,071,000
Income from operations			886,000				276,000
Other income (expense):
Interest and other income			8,000				2,000
Interest and other expenses			(33,000	)			-
Total other income (expense)			(25,000	)			2,000
Income before income tax			861,000				278,000
Current income tax expense			27,000				12,000
Deferred income tax expense (benefit)			141,000				(4,000	)
Total income tax expense			168,000				8,000
Net income		$	693,000			$	270,000
Per share amounts:
Basic		$	0.40			$	0.16
Diluted		$	0.40			$	0.16
Weighted average common shares outstanding:
Basic			1,732,250				1,720,712
Diluted			1,732,250				1,720,712

		Three Months Ended
		June 30,
		2013				2012
Cash flows from operating activities:
Net income		$	693,000			$	270,000
Adjustments to reconcile net income to net cash provided by
operating activities:
Depletion and depreciation			786,000				294,000
Deferred income tax expense			141,000				(4,000	)
Accretion of asset retirement obligation			49,000				43,000
Share-based compensation			47,000				60,000
Amortization of deferred financing costs			3,000				-
Change in:
Accounts receivable, net			419,000				441,000
Other current assets			34,000				(772,000	)
Accounts payable, accrued and other liabilities			716,000				(374,000	)
Net cash provided by (used in) operating activities			2,888,000				(42,000	)
Cash flows from investing activities:
Oil and gas properties			(3,718,000	)			(2,122,000	)
Purchases of support equipment and other non-current assets			(144,000	)			(28,000	)
Net cash used in investing activities			(3,862,000	)			(2,150,000	)
Cash flows from financing activities:
Borrowings on long-term debt			1,000,000				-
Deferred financing fees			(4,000	)			-
Net cash provided by financing activities			996,000				-
Cash and cash equivalents:
Net increase (decrease) in cash and cash equivalents			22,000				(2,192,000	)
Cash and cash equivalents, beginning of year			2,180,000				6,778,000
Cash and cash equivalents, end of period		$	2,202,000			$	4,586,000
Supplemental disclosure of cash flow information:
Cash paid for interest		$	31,000			$	-
Cash paid for income tax		$	-			$	70,000
Non-cash:
Increase in oil and gas property due to asset retirement obligation		$	19,000			$	14,000
Accrued capital expenditures		$	903,000			$	267,000
Prepaid capital expenditures		$	-			$	345,000

3. Accrued Liabilities

 

 

 

 

 

1		Amount does not include water service and disposal revenue.  For the three months ended June 30, 2013, this revenue amount is net of $13,000 in well service and water disposal revenue, which would otherwise total $3,595,000 in revenue, compared to $127,000 in the respective periods ended June 30, 2012 to total $2,347,000 for the comparable three month period ended June 30, 2012.
2		Overall lifting cost (oil and gas production costs, including production taxes and the cost of workovers)
3		Estimates of volumes are inherent in reported volumes to coincide with revenue accruals as a result of the timing of sales information reporting by third party operators.
4		Averages calculated based upon non-rounded figures.
5		Per equivalent barrel (6 thousand cubic feet, “Mcf”, of gas is equivalent to 1 barrel, “Bbl”, of oil)

 

 

Gas sales revenue increased $110,000 (120%) for the three months ended June 30, 2013, compared to the three months edned June 30, 2012, as a result of the increase in reported production and a higher realized price per Mcf as described in "Volume and Prices"
 below.

 

 

		Three Months Ended June 30,
		2013				2012
Lease operating costs		$	697,000			$	658,000
Workover costs			116,000				171,000
Production taxes			309,000				196,000
Transportation and other costs			22,000				5,000
Total production expense		$	1,144,000			$	1,030,000

 

		Total Number of Shares Purchased¹				Average Price Paid Per Share				Number of Shares Purchased as Part of a Publicly Announced Plan¹				Maximum Shares that May Yet be Purchased under the Plan¹
April 1, 2013 – April 30, 2013			—			$	—				—				103,284
May 1, 2013 – May 31, 2013			—			$	—				—				103,284
June 1, 2013 – June 30, 2013			—			$	—				—				103,284
Total			—								—

¹

On October 22, 2008, the Company’s Board of Directors authorized a share buyback program for the Company to repurchase up to 50,000 pre-split shares of its common stock for a period of up to 18 months.  The program does not require the Company to repurchase any specific number of shares, and the Company may terminate the repurchase program at any time.  On November 13, 2009, the Board of Directors increased the number of shares authorized for repurchase to 150,000 pre-split shares.  On February 10, 2010, the Board extended the termination date of the program from April 22, 2010 to October 22, 2011.  On November 7, 2011, the Board further extended the termination date of the program from October 22, 2011 to October 22,  2013. During the quarter ended December 31, 2012, no shares were repurchased under the share buyback program and 103,284 shares (11,067 post-split shares) remain available for future repurchase.

Exhibit No.		Document
31.1		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Ray Singleton, President and Chief Executive Officer).
31.2		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Paul D. Maniscalco, Interim Chief Financial Officer).
32.1		Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Ray Singleton, President and Chief Executive Officer).
32.2		Certification Pursuant to 18 U.S.C. §1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (Paul D. Maniscalco, Interim Chief Financial Officer).
101		The following materials from the Company’s quarterly report on Form 10-Q for the quarter ended June 30, 2013, formatted in XBRL (Extensible Business Reporting Language): (i) the Unaudited Condensed Consolidated Statements of Operations, (ii) the Unaudited Condensed Consolidated Balance Sheets, (iii) the Unaudited Condensed Consolidated Statements of Cash Flows, and (iv) Notes to Unaudited Condensed Consolidated Financial Statements, tagged as blocks of text.