Earthstone Energy, Inc.

Second-quarter adjusted net income was $76 million, or $0.53 per share. Adjusted EBITDAX was $239 million and free cash flow was $42 million. Production averaged over 105,000 BOE/d, including oil above 44,000 b/d, and management said that exceeded the top end of 2023 production guidance year-to-date. LOE was $9.13 per BOE, down $0.23 per BOE from the first quarter. At June 30, debt was slightly over $1 billion, cash was about $50 million, and LTM leverage was 0.8x. For the full year, Earthstone reaffirmed CapEx of $725 million to $775 million. Looking ahead, it guided to third-quarter production of 115,000 to 120,000 BOE/d and fourth-quarter production of 130,000 to 135,000 BOE/d, both 41% oil. Management said Novo is expected to close on August 15, with an estimated $100 million to $120 million downward purchase price adjustment, and said net debt would be roughly $1.8 billion or a little lower at closing; the credit facility commitment will increase to $1.75 billion.

Robert Anderson framed the quarter as proof that Earthstone's asset quality and operating discipline are working, pointing to record production, strong well results, and the ability to keep output around 105,000 BOE/d for three straight quarters. His tone was upbeat and confident around the pending Novo acquisition, which he said will deepen the company's inventory, scale, and free-cash-flow profile while keeping leverage manageable. He also emphasized that Earthstone wants to remain selective: more focused on inventory-rich development opportunities than on pure PDP deals, and still open to divestitures and future M&A if they fit the strategy.

Mark Lumpkin focused on the financial bridge from the quarter to the Novo close and beyond. He cited $76 million of adjusted net income, $239 million of adjusted EBITDAX, $42 million of free cash flow, roughly $1 billion of debt, about $50 million of cash, and 0.8x LTM leverage, then said Novo should close around August 15 with a $100 million to $120 million downward purchase price adjustment. He said Earthstone expects to use significant free cash flow to pay down revolver borrowings, expects about $1.75 billion of credit capacity after closing, and reaffirmed full-year CapEx of $725 million to $775 million while noting 2024 CapEx should be a bit lower than 2023 if the five-rig program holds.

Analysts pressed on the 1,000-plus drilling locations, lateral lengths, and whether there is room for more swaps or bolt-on deals; management said most locations are in the 7,500- to 10,000-foot lateral range and that Earthstone will look for acreage trades where they can improve lengths and efficiencies, but that the company largely has what it has. Questions on LOE and service-cost stickiness drew a detailed response that compression, labor, and GP&T inflation remain stubborn, though rig renewals have recently come down 10% to 15% and other service categories are easing. Analysts also asked how the company thinks about shareholder returns once leverage gets below 1.0x; management said returns are on the radar, but the near-term focus remains deleveraging, integrating Novo, and creating value through operating performance. There was also discussion of Wolfcamp D wells, with management saying the early results look encouraging and that the wells are still natural-flowing, with artificial lift expected to increase rates soon.