Q4 2021 Earthstone Energy, Inc. Earnings Call

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Good morning, and welcome to Earth Stone 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.

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

If anyone should require operator assistance during the conference, please press star zero on your telephone.

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.

Joining us today from Archstone 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 Landers, Vice President of Finance, Mr. Steve Handler, you may begin.

Speaker Change: 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.

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.

Speaker Change: 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 .

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 .

Speaker Change: 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.

These documents can be found in the investors section of our website www dot or stone energy Dot com should one or more of these risks materialize or should underlying assumptions prove incorrect actual results may vary materially.

Speaker Change: 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.

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.

Speaker Change: 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.

Today's call will begin with comments from Robert Anderson, Our CEO , followed by remarks from Steve Collins, our CFO and Mark Lumpkin, Our CFO and then we will have some closing comments from Robert I'll now turn the call over to Robert.

Robert John Anderson: Thanks, Scott. And good morning, everyone. We appreciate you joining us today for our fourth quarter and full year 2021 conference call.

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.

Robert John Anderson: 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.

Robert John Anderson: managing our balance sheet, and delivering strong financial results.

Managing our balance sheet and delivering strong financial results.

Robert John Anderson: 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.

The dedication of all our employees as 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 about what we have accomplished.

Robert John Anderson: 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.

We continue to demonstrate our ability to acquire and integrate accretive and well located assets that generate meaningful production in cash flow and continue to drive down our overall cash costs.

Robert John Anderson: 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.

With the Chisholm acquisition behind US now we have closed five acquisitions since the start of 2021, not including the pending acquisition of Big Horn, 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 scale.

Robert John Anderson: 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.

Low cost producer with a more robust high margin drilling inventory and low lower reinvestment needed in order to maintain combined production levels.

Robert John Anderson: We are truly transforming Earthstone into a bigger and better company that is built to last.

We are truly transforming <unk> into a bigger and better company that is built to last as.

Robert John Anderson: As we look ahead to 2022, we remain focused on integrating these assets, generating substantial free cash flow, continuing strength of our balance sheet, and identifying operational synergies.

As we look ahead to 2022 we remain focused on integrating these assets generating substantial free cash flow.

Continuing 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 have already begun integrating these assets and are excited about what this means for our daily production rate and free cash flow generation capacity.

Robert John Anderson: 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.

Robert John Anderson: 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.

These assets expand our operations into the Delaware Basin.

Generated 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 our high return drilling inventory that consists of over 414 grew.

<unk> operated drilling locations.

Robert John Anderson: 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.

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.

Robert John Anderson: 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.

This will be the latest in a series of highly accretive acquisitions with big Horn 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.

Robert John Anderson: 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.

With the Big Horn assets included we will have more than quadrupled our daily production rate and should end 2022 approaching 80000 Boe per day with a greatly expanded acreage footprint and all of this achieved over the past year and a half.

Robert John Anderson: 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 EBIT.

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.

Robert John Anderson: 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,

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.

Robert John Anderson: further acquisitions, and may include shareholder returns.

Further acquisitions and May include shareholder returns.

Robert John Anderson: As I mentioned, the two most recent acquisitions that we've announced are the largest in our company's history.

As I mentioned the two most recent acquisitions that we've announced are the largest in our company's history.

Robert John Anderson: 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.

With our success in using equity in cash in 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.

Robert John Anderson: 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.

While we continue to pursue potential acquisitions opportunities that fit our criteria the size of our latest deals dictate that we make efficient integration of high priority in the near term and you'll hear more about that.

Robert John Anderson: 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.

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.

Robert John Anderson: 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.

Flows were currently allocating our capital budget of $410 million 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.

Robert John Anderson: Our capital budget also accounts for some of the cost pressures that we are continuing to experience and expect for the foreseeable future.

Future.

Robert John Anderson: 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. Thanks, Robert.

We expect that 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.

Thanks, Robert Good morning, everyone.

Steve Collins: We've been operating two drilling rigs in the Midland Basin since the third quarter of 2021. Details of those operations can be found in our February 16th operations update.

We've been operating two drilling rigs in the Midland Basin since the third quarter of 2021 details of those operations can be found in our February 16th operations update.

Steve Collins: In 2021, we turned to sales a total of 19 gross, 15.4 net operated wells. And due to our drilling

In 2021, we turned to sales a total of 19 gross 15, four net operated wells and due to higher drilling schedule shook out where we factor in operations and reservoir dynamics. Our 2021 operated program average lateral length came out to 5500 feet.

Steve Collins: where we factor in operations and reservoir dynamics, our 2021 operated program average lateral length came out to 5,500.

Steve Collins: And while the results of the wells brought online in 2021 have been encouraging, we're excited about our 2022 Midland Basin program, where we expect to bring online 40 gross 36.7 net operated wells with an average lateral length approximately.

While the results of the wells brought online in 2021 have been encouraging we're excited about our 2022 Midland Basin program.

We expect to bring online 40 gross $36 seven net operated wells.

With an average lateral length of approximately 9500 feet.

Steve Collins: On the LOE side of things, for 2021, I'm very happy to see how our goals of being a low-cost operator has continued to manifest itself.

On the alloy side of things for 2021, I'm very happy to see our goals of being a low cost operators continue to manifest itself, we saw LOE per Boe under $5 for the fourth quarter and under $5 50 for the full year.

Steve Collins: We saw LOE per BOE under $5 for the fourth quarter and under $5.50 for the second quarter.

Steve Collins: My team works very hard at reducing costs and production downtime in the field in order to increase overall margins and drive cash flow generation.

Our team works very hard at reducing cost and production downtime in the field in order to increase overall margins and drive cash flow generation.

Now moving on to current activity.

Steve Collins: In the middle invasion, we just brought online five gross, five net wells on our nickel saloon pad in Upton County.

In the Midland Basin, we've just brought on line five gross five net wells on our nickel saloon pad in Upton County.

Steve Collins: These wells targeted the Wolf Camp A, Wolf Camp B, and Wolf Camp C zones with an average lateral length of 10.

These wells targeted the Wolfcamp, a wolfcamp b and Wolfcamp C zones.

With an average lateral length of 10100 feet.

Steve Collins: And while these wells are still cleaning up, early signs look to be very encouraging.

And while these wells are still cleaning up early signs it could be very encouraging.

Steve Collins: particularly some Wolf Camp Sea Whales that are making over 1,200 BOE per day.

Particularly some wolfcamp C wells that are making over 1200 Boe per day.

Steve Collins: Wolf Camp A and B wells average approximately $684.

Wolfcamp, a and B wells averaged approximately $684.

Steve Collins: foot to drill and complete, which is at the lower end of the range for the 2021 estimate.

Foot to drill and complete which was at the lower end of the range for the 2021 estimate.

Steve Collins: 10,000 foot wells that we've discussed with you in the past. We are currently in the process of

For 10000 foot wells that we've discussed with you in the past.

We are currently in the process of completing six.

Steve Collins: Gross, also 6Net, wells on our Benidorm project area, where we have an average length of 7,700 feet and targeted the Wolf Camp A, Wolf Camp B, and Wolf Camp C zones. These wells are expected to be online.

Gross also six net wells on our Pentagon project area, where we have an average lateral length of 7700 feet and targeted the wolfcamp, a wolfcamp b and Wolfcamp C zone.

These wells are expected to be online in early to mid April .

Steve Collins: Additionally, there's another six gross, or 4.8 net, midland basin wells that are drilled and waiting to be completed.

Additionally, there's another six gross or $4 eight and at Midland Basin Wells.

Our drilled and waiting to be completed.

Steve Collins: We're all very focused on efficiently integrating the newly acquired ChISM assets into our operation.

We're all very focused on efficient efficiently integrating the newly acquired Chisholm assets into our operations, where we have hired the majority of the field staff, providing consistency in operations we.

Steve Collins: where we have hired the majority of the field staff providing consistency in operation.

Steve Collins: We will continue with the two rigs currently operating in the Chisholm acreage in the northern Delaware basin of New Mexico.

We will continue with the two rigs currently operating in the Chisholm acreage in the northern Delaware Basin in New Mexico.

Steve Collins: We just finished drilling a two-well pad in our Anaconda project, where we hold a 42% working interest. And we'll average 10,000 foot laterals targeting third bone springs zone.

Just finished drilling a two well pad in our Anaconda project, where we hold a 42% working interest.

Average 10000 foot laterals targeting third bone Springs sand zone.

Steve Collins: And two well pad in our Menace project, where we hold a 96% working interest and will average 7,500 foot laterals targeting the Harky zone within the third zone spring.

And two well pad in our minutes project, where we hold a 96% working interest well averaged 7500 foot laterals targeting the harkey zone within the third bone spring.

Steve Collins: Completion activity on both of these pads will start in the middle of March and we expect to have these wells online early in the second quarter.

Placement activity in both of these pads will start in the middle of March and we expect to have these wells online early in the second quarter.

Steve Collins: One of the rigs is now drilling a two well pad on our ram project in which we have an 86% working interest.

One of the rigs are now drilling a two well pad on our Ram project in which we have 86% working interest.

Steve Collins: And the other rig is drilling a two-well pattern on a Bel Air project in which we have a 62% work

The other rig is drilling a two well pad on our Bel Air project in which we have a 62% working interest.

Steve Collins: Both pads are located in Lee County and are targeting the first and second bone spring zones.

Both pads are located in Lea County, and are targeting the first and second bone spring zones.

Steve Collins: In late January and prior to the closing of the Chisholm acquisition, a total of five gross 3.2 net wells were turned online and all located in Lee County and targeted to the second and third Bowdoin Springs.

In late January in prior to the closing of the Chisholm acquisition, a total of five gross three two net wells were turned online.

All located in Lea County, and targeted to the second and third bone spring zones.

Steve Collins: Our 2022 capital program of $410 million to $440 million provides for a continuation of the.

Our 2020 to go capital program of 410 million to $440 million provides for a continuation of the four rig program.

Steve Collins: two rigs in the Delaware Basin, and two rigs in the Midland Basin.

Two rigs in the Delaware Basin, and two rigs in the Midland Basin, and we expect to bring online a total of 58 gross $48 three net operated wells in 2022.

Steve Collins: And we expect to bring online a total of 58 grows, 48.3 net operated wells in 2022.

Steve Collins: We also expect to participate in some non-operated Midland Basin projects that should total $25 million of capital and bring online an incremental 4.2 net wealth.

We also expect to participate in some non operated Midland basin projects.

<unk> totaled $25 million of capital and bring online an incremental 4.2 net wells.

Steve Collins: Additionally, we have budgeted another $25 billion for land, infrastructure, and work over projects.

Additionally, we have budgeted another 25 billion for land infrastructure and Workover projects.

And now moving on to the Big Horn acquisition.

Steve Collins: Given the acreage is more developed than our other acreage, we don't anticipate spending a material amount of capital on the assets outside of a few smaller workover projects that are already baked into our full year capital budget.

Given the acreage is more developed than our other acreage, we don't anticipate spending a material amount of capital on the assets outside of a few smaller workover projects that are already baked into our full year capital budget.

Steve Collins: As a result, we expect to see significant free cash flow coming from the Bighorn Acreage should commodity prices remain at the levels we are currently experiencing.

As a result, we expect to see significant free cash flow coming from the big Horn acreage should commodity prices remain at the levels. We're currently experiencing.

Steve Collins: And as we've laid out in our public guidance, once we have the benefit of a full quarter of Bighorn production.

And as we've laid out in our public guidance. Once we have the benefit of a full quarter of big Horn production, we expect to see total production for the company to be around 78000 Boe per day and are currently forecasting low single digit production growth annually on a go forward basis under our four rig development program.

Steve Collins: We expect to see total production for the company to be around 78,000 BOE per day.

Steve Collins: and are currently forecasting low single-digit production growth annually on a go-forward basis under our four-rig development program.

Steve Collins: And now switching over to the cost side, both drilling and completion activities, as well as field and lifting costs.

And now switching over to the cost side, both drilling and completion activities as well as field in lifting costs.

Steve Collins: We're currently seeing many of the same inflationary pressures as our peers, with service prices and raw materials increasing in real time.

We're currently seeing many of the same unfortunately pressures as our peers with service prices and raw materials, increasing in real time.

Steve Collins: and expected to increase by 15%, similar to what we saw in 2021.

We expected to increase by 15% similar to what we saw in 2021.

Steve Collins: As expected, service companies are pushing to increase prices as demand increases.

As expected service companies are pushing to increase prices as demand increases.

Steve Collins: To offset this, we have locked in long-term contracts where it makes sense on things like frac stand and production tubing. We continue to source less expensive supplies and services that are protected from supply chain disruption.

Offset this we have locked in long term contracts, where it makes sense.

Things like Frac sand and production tubing, we continue to source less expensive supplies and services that are protected from supply chain disruptions.

Steve Collins: By adding both Chisholm and Bighorn to our asset base, which have higher field operating costs than our legacy position, we expect LOE per BOE.

By adding both Chisholm and big Horn to our asset base, which have higher field operating costs at our legacy position, we expect LOE per Boe.

Steve Collins: be higher than where we have been historically. And our guidance for the full year of 2022 of $7.25, $7.75 of LOE per BOE reflects that.

The higher than where we had been historically and our guidance for the full year of 2000 2022 of $7 25, and $7.75 of <unk> per Boe reflects that.

However.

Steve Collins: Once we've had a chance to get our arms around both assets and apply our own operating expertise and procedures, I'm confident that our team will find ways to reduce these costs and create additional value on both assets.

Once we've had a chance to get our arms around both assets and apply our own operating expertise to procedures and I'm confident that our team will find ways to reduce these costs.

Additional value on both assets.

Steve Collins: We maintain a very thoughtful and disciplined approach to the way we handle consolidation and the execution of our operations.

We maintain a very thoughtful and disciplined approach to the way, we handle consolidation and the execution of our operations. We will closely monitor our pace make sure we fully understand the newly acquired asset and promptly apply any learnings that we may have gained throughout the process.

Steve Collins: We will closely monitor our pace, make sure we fully understand the newly acquired assets, and promptly apply any learnings that we may have gained throughout the process.

With that I'll turn it over to Mark. Thank you, Steve as I did last quarter I'm not going to repeat a bunch of numbers in metrics from the earnings release, our 10-K, which you can find on our website.

Steve Collins: For that, I'll turn it over to Mark. Thank you, Steve. As I did last quarter, I'm not going to repeat a bunch of numbers and metrics from the earnings releaser 10-K, which you can find on our website. And as a reminder, there is our full year guidance.

And as a reminder, there is our full year guidance also on our website from our February 16th operations update and also in our Investor deck. So let me begin with some details around our balance sheet and the impacts of M&A activity on the balance sheet as of year end 2021, we had a borrowing base on our credit facility of $650 million with borrowings of three.

Mark Lumpkin: also on our website from our February 16th operations update and also in our investor deck. So let me begin with some details around our balance sheet and the impacts of M&A activity on the balance sheet.

Mark Lumpkin: As of year-end 2021, we had a borrowing based on our credit facility of $650 million.

Mark Lumpkin: With borrowings of $320 million at year end, we had approximately $330 million of undrawn capacity.

<unk> hundred $20 million at year end, we had approximately $330 million of Undrawn capacity.

Mark Lumpkin: Based on our debt at year-end and the $85 million of adjusted EBITX for the quarter, our fourth quarter debt to EBITX was 0.9 times.

Based on our debt at year end and the $85 million of adjusted EBITDAX for the quarter, our fourth quarter debt to EBITDAX was <unk> nine times.

Mark Lumpkin: As we announced in mid-February, our borrowing base and electric commitments were increased from $650 million to $825 million upon the closing of the Chisholm equity fund.

As we announced in mid February our borrowing base and electric commitments for increased from $650 million to $825 million. Upon the closing of the Chisholm acquisition and as of March 1st just to give you guys. An idea of where we stand post Chisholm, we had $652 million of outstanding debt and $1 billion of cash, leaving us with about one.

Mark Lumpkin: And as of March 1st, just to give you guys an idea of where we stand post-CHISM, we had $652 million of outstanding debt and $1 million of cash, leaving us with about $174 million of undrawn borrowing capacity and cash.

<unk> hundred 74 million of Undrawn borrowing borrowing.

<unk> cash.

Mark Lumpkin: And related to the Bitcoin acquisition, we did borrow approximately $50 million to fund the deposit, so that is reflected in the outstanding debt of $652 million as of March 1st.

And related to the Big Heart acquisition, we did borrow approximately $50 million to fund the deposit so that is reflected in the outstanding debt of $652 million as of March one.

Mark Lumpkin: Further, we secured commitments at our credit facility to increase the borrowing base and the total commitments by an additional $500 billion at the closing of the Bitcoin acquisition, which will bring our borrowing base and elected commitments to $1.325 billion.

Further we secured commitments under our credit facility to increase the borrowing base and the total commitments by an additional $500 million at the closing of the Bighorn acquisition, which will bring our borrowing base of electric commitments to $1.3 billion to $5 billion.

Mark Lumpkin: To reiterate what Robert touched on earlier, we're optimistic that we'll achieve our targeted one-times or lower debt-to-EBITDA in 2022. Our ability to make acquisitions using a mix of debt and equity has enabled us to add significant scale while minimizing the incremental impact on leverage and also minimizing equity deletion.

Reiterate what Robert touched on earlier, we're optimistic that we'll achieve our targeted one times or lower debt to EBITDA in 2022, our ability to make acquisitions using a mix of debt and equity has enabled us to add significant scale, while minimizing the incremental impact on leverage and also minimizing equity dilution.

Mark Lumpkin: Our fourth quarter EBITX of $85 million was a 31% increase on a quarter-over-quarter basis and a new quarterly high for our company.

Our fourth quarter EBITDAX of $85 million was 31% increase on a quarter over quarter basis, and a new quarterly high for our company.

Mark Lumpkin: driven not just by the strength in commodity prices, but also lower LOE per BOE, as Steve mentioned, and our ability to control GNA cost.

Driven not just by the strength in commodity prices, but also lower LOE per Boe as Steve mentioned and our ability to control G&A costs, we added $28 $5 million of free cash flow in the fourth quarter, which brought us to $107 million of free cash flow for the full year and we expect to substantially increase the free cash flow number in 2022.

Mark Lumpkin: We added $28.5 million of free cash flow in the fourth quarter, which brought us to $107 million of free cash flow for the full year, and we expect to substantially increase this free cash flow number in 2022 with the additions of both Chisholm and Bitcoin.

With the additions of both Chisholm and Big Horn.

Mark Lumpkin: With the addition of the Chisholm assets and the pending Bighorn assets, we expect free cash flow to be a multiple in 2022 of what we saw in 2021. As a result, we'll be in a strong position to consider the best uses of our future free cash flow. In the short term, we expect to utilize free cash flow for debt repayment, but as we de-lever further, we should then be able to consider a shareholder return program.

With the addition of the Chisholm assets and depending Bighorn assets, we expect free cash flow to be a multiple in 2022 of what we saw in 2021 as a result, we will be in a strong position to consider the best uses of our future free cash flow in the short term, we expect to utilize free cash flow for debt repayment, but as we delever further.

And then be able to consider a shareholder return program.

Mark Lumpkin: From a production standpoint, we came in above our fourth quarter guidance with about 3,200 barrels of oil equivalent per day, which was 43% oil, 30% natural gas, and 27% natural gas liquid.

From a production standpoint, we came in at about above our fourth quarter guidance with about 3200 barrels of oil equivalent per day, which was 43% oil, 30% natural gas and 27% natural gas liquids.

Mark Lumpkin: When looking at 2022 and all the moving parts related to the timing of the closing of the Chisholm and the Bitcoin acquisitions, we've laid out a detailed production guidance that, again, can be found in our February 16th release or in our investor deck.

When looking at 2022 and all the moving parts related to the timing of the closing of the Chisholm in the big Horn acquisitions, we've laid out a detailed production guidance that again can be found in our February 16th release or in our investor deck, but just high level summary on that we did break down a little more granular to make clear what our expectations are for the first quarter in there.

Mark Lumpkin: But just to hit high level summary on that, we did break down a little more granular to make clear what our expectations are for the first quarter and the rest of the year. And for the first quarter, we expect production to be somewhere between 35,000 and 37,000 BOE per day with a 44% oil cut. That includes.

Rest of the year and for the first quarter, we expect production to be somewhere between 35030, 7000 Boe per day with a 44% oil cut that includes approximately half a quarter of Chisholm and not a big horn, which we don't expect to close until April and the second quarter with the closing of.

Robert John Anderson: approximately half a quarter of Chisholm and none of Bighorn, which we don't expect to close until April .

Robert John Anderson: In the second quarter, with the closing of Bighorn and Chisholm in our reported results for the full year, we expect to produce approximately $70,000 to $74,000.

The big Horn, and Chisholm and our reported results for the full year, we expect to produce approximately 780000 to 74000 Boe per day with about a 41% oil cut and finally for the second half of the year that will step up further as we get a full quarter of a full.

Robert John Anderson: BOE per day with about a 41% oil cut. And finally, for the second half of the year, that will step up further as we get a full quarter, a full contribution from both Chisholm and Bighorn, and we expect the second half production to be somewhere between 76,000 and 80,000 BOE per day with an oil cut of about 41%.

Tributes from both Joseph and Big Horn, and we expect the second half production to be somewhere between 76080 thousand Boe per day with an oil cut of about 41%.

Robert John Anderson: So on a full-year basis, that build-up equates to production somewhere between 64,250 barrels a day of production and 67,750 barrels a day of production, comprised of about 41% oil, 33% natural gas, and 26% NGLs. Total cash G&A for the fourth.

So on a full year basis that buildup it equates to production somewhere between 264250 barrels a day of production and 67000 and 750 barrels a day of production comprised of about 41% oil, 33% natural gas and 26% Ngls.

Total cash G&A for the fourth quarter and full year 2020.

Robert John Anderson: were $6.3 million and $20.9 million, respectively, which also came in a little bit lower than the midpoint of our guidance. For 2022, we are guiding to full year cash G&A of approximately $31 to $34 million, which implies a cash G&A cost of $1.35 per BOE based on the midpoints of our guidance, which would be a 40% decrease on a per unit basis compared to 2021's $2.31 per BOE of cash G&A.

Were $6 $3 million and $20 $9 million, respectively, which also came in a little bit lower than the midpoint of our guidance for 2022, we are guiding to forecast to full year cash G&A of approximately 31% to $34 million, which implies a cash G&A cost of $1 35 per Boe.

Based on the midpoint of our guidance, which would be a 40% decrease on a per unit basis compared to 2020 ones $2.31 per Boe of cash G&A.

Robert John Anderson: On the LOE front, as Steve mentioned, we had an exceptionally low cost fourth quarter with LOE per BOE of $4.94, coming in about 16% lower than the midpoint of guidance. And this resulted in achieving full year LOE per BOE of about $5.45 per BOE.

On the yellow on the alloy front as Steve mentioned, we had an exceptionally low cost fourth quarter with LOE per Boe.

$4, 94% at $4.94 coming in about 60% lower than the midpoint of guidance and this resulted in achieving full year LOE per Boe of about $5 45 per Boe.

Robert John Anderson: For 2022 and reflecting the assets acquired with higher levels of LOE, our guidance for LOE is in the range of $7.25 to $7.75 per BOE, as Steve mentioned.

For 2022, and reflecting the assets acquired with higher level of low <unk> or guidance for <unk> is in the range of $7 25 to $7 75 per Boe as Steve mentioned.

Robert John Anderson: As we look ahead to 2022, from a capital expenditure standpoint, we're targeting a reinvestment rate of not much more than about half of our EBITX, pro forma for Bighorn, and that provides a significant free cash flow generation while largely holding total production flat throughout the year, pro forma for all the acquisitions. And this, of course, includes the assumed timing of the Bighorn acquisition in mid-April.

As we look ahead to 2022 from a capital expenditure standpoint, we're targeting a reinvestment rate I'm not much more than about half of our EBITDAX pro forma for bighorn and that provides a significant free cash flow generation, while largely holding total production flat throughout the year pro forma for all the acquisitions and this of course includes the.

Assumed timing of the Big Horn acquisition in mid April on.

Robert John Anderson: On the hedging front, as we ended our last call, our plan for 2022 has been to be a bit less hedged than we have in the past.

On the hedging on the hedging front as we noted in our last call. Our plan for 2022 has been has been to be a bit less hedged than we have in the past.

Robert John Anderson: Pro forma for Chisholm and also for the Bighorn acquisitions, we're a bit over 50% hedged on both oil and gas from May onward. As it relates to the recent closing of Chisholm and the pending Bighorn acquisition, the production of the respective assets from the effective date through the closing date and really a bit beyond that is unhedged and we have and will benefit from those significant increase in the commodity prices versus what we had assumed at signing.

Pro forma for Chisholm and also for the Big Horn acquisitions were a bit over 50% hedged on both oil and gas from May onwards, as it relates to the recent closing of Chisholm and the pending Bighorn acquisition. The production on the respective assets from the effective date through the closing date and really a bit beyond that is unhedged and we have a we have and will better.

But from the significant increase in commodity prices versus what we had assumed at signing.

Robert John Anderson: This effectively lowers the cash paid at closing, and on the Bitcoin acquisition in particular, we expect the reduction in the purchase price to be over $100 million, assuming the mid-April.

This effectively lowers the cash paid at closing in on the Big Heart acquisition in particular, we expect a reduction in the purchase price to be over $100 million, assuming the mid April .

Robert John Anderson: closing date that we are targeting. With that, I'll turn it back over to Robert for closing comments.

Closing date that we're targeting with that I'll turn it back over to Robert for closing comments.

Robert John Anderson: Hey, thanks, Mark. As you can all tell from our results, as well as our guidance for 2022, 2021 was truly a transformative year for Earthstone. But we believe the best is yet to come.

Mark as you can all tell from our results as well as our guidance for 2020 to 2022 2021 was truly a transformative year for <unk>, but we believe the best is yet to come.

Robert John Anderson: We enter 22 in a better strategic position to optimize our operations, generate substantial free cash flow, and deliver significant shareholder value. Our ability to get acquisitions done using equity as a meaningful component of the total consideration to sellers demonstrates confidence in our team's execution and validates our strategy, while also bringing benefit to the long-term strength of our balance sheet.

We enter 'twenty two in a better strategic position to optimize our operations generate substantial free cash flow and deliver significant shareholder value our ability to get acquisitions done using equity as a meaningful component of the total consideration to sellers demonstrates confidence in our team's execution and validates our.

<unk>, while also bringing benefit to the long term strength of our balance sheet.

Robert John Anderson: These six acquisitions that we've closed or announced in the past year and a half.

These six acquisitions that we've closed or announced in the past year and a half.

Robert John Anderson: have expanded our footprint by over 220,000 acres.

<unk> expanded our footprint by over 220000 acres.

Robert John Anderson: and have given us an increase in our total approved reserves to today, where we sit at approximately 330 million barrels of oil equivalent, with a PB10 value of $4.5 billion using March 1st NIMEX strip pricing. When you consider just the proved

And had given US an increase in our total proved reserves to today, where we sit at approximately 330 million barrels of oil equivalent with a PV 10 value of four and a half billion dollars, usually using march 1st Nymex strip pricing.

When you consider just the proved developed value is.

Robert John Anderson: It's $3.2 billion, which shows the resiliency of the business we have built with these transactions and illustrating our ability to continually complete.

It's $3 $2 billion, which shows the resiliency of the business. We have built with these transactions and illustrating our ability to continually complete now.

Robert John Anderson: attractively priced acquisitions with significant upside potential.

[noise] attractively priced acquisitions with significant upside potential.

Robert John Anderson: Commitment to our core beliefs and strategy remain, regardless of market conditions or commodity prices.

Commitment to our core beliefs and strategy remain regardless of market conditions or commodity prices, we put all potential acquisitions under a technical and financial microscope and prioritize shareholder value above all else. This will not change in 2022, as we operate as a much larger entity and as you've heard.

Robert John Anderson: We put all potential acquisitions under a technical and financial microscope and prioritize shareholder value above all else. This will not change in 2022 as we operate as a much larger entity. And as you have heard, we are prioritizing the successful integration of our recent acquisitions.

We are prioritizing the successful integration of our recent acquisitions. However, we will also focus on building scale in an accretive manner and we'll continue to consider complementary assets that fit our acquisition criteria and allow us to maintain the strength of our balance sheet.

Robert John Anderson: However, we will also focus on building scale in an accretive manner, and we'll continue to consider complementary assets that fit our acquisition criteria and allow us to maintain the strength of our balance sheet.

Robert John Anderson: We will continue to operate responsibly in every community or area where we have assets and people. And finally, we will put Earthstone in the best position possible to maximize per share value for each and every one of our stakeholders. Now with that, operator, we'd be glad to take a few questions.

We will continue to operate responsibly in every community or area, where we have assets and people and finally, we will put us down in the best position possible to maximize per share value for each and every one of our stakeholders.

Now with that operator, we'd be glad to take a few questions.

Thank you we will now be conducting a question and answer session.

Robert John Anderson: If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue.

I'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question queue.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment. Please while we poll for your questions.

Robert John Anderson: participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for your questions.

Our first question will come from the line of Neal Dingmann with Truest. Please proceed with your question.

Speaker Change: Good morning all. Robert, good question. You guys have obviously done a fantastic job not only scaling up but doing that while now having a great free cash flow profile.

Good morning.

Robert.

How do you guys have obviously done a fantastic job not only scale it out but doing that while having a great free cash flow profile. So I know in the past you've mentioned a good bit of that free cash flow using the scale versus paying that out either for them to get at it or or or a buyback I'm. Just wondering now when you and mark.

Robert John Anderson: a good bit of that free cash flow using the scale versus paying that out either in the form of a dividend or a buyback, and I'm just wondering, now when you and Mark and the team sit down and look at it, you certainly have the scale, you certainly have still the free cash flow. How do you think about it today, sort of more the nearer term thoughts of that free cash

Sit down and look at it.

You certainly have the scale you certainly have still the free cash flow. How do you. How do you think about it to date sort of more of the nearer term thoughts of that free cash flow.

Yeah. That's a good question, Neil and Theres not a an absolute answer just yet.

Speaker Change: Yeah, that's a good question, Neil, and there's not an absolute answer just yet. We've got to get Bighorn closed. I'd like to have a couple quarters of execution under our belt and then start considering what our other alternatives are for free cash flow as well.

Gotta get Bighorn close I'd like to have a couple of quarters of execution under our belt and then start considering what our other alternatives are for free cash flow as well.

Speaker Change: besides just paying down debt or thinking about shareholder returns of some sort, but also looking at maybe other opportunities to spend that cash flow. So all of those are on the table.

Besides just paying down debt or thinking about shareholder returns of some sort, but also looking at maybe other opportunities to spend that cash flow. So all of those are on the table and we'll just continue throughout the year. After we get big Horn close in and see how the environment.

Speaker Change: And we'll just continue throughout the year after we get Bighorn closed and see how the environment

Speaker Change: is when we look up after a couple of quarters of operating all of this stuff.

Is when we look up after a couple of months couple of quarters of operating all of this stuff at once.

Speaker Change: Does that include, I mean, again, look, I think your shares, I think a lot of folks do, are incredibly cheap, but obviously the float's an issue, so is, you know, I don't know, the question for you or Mark, part of that is, is that an option?

Does that include I mean, again look I think your shares I think a lot of folks so incredibly cheap, but obviously the floats and issue. So as you know I don't know if a question for you on part of that is just is that an option.

Speaker Change: of buying back shares is what you're asking, I think, Neil? That's right, that's right.

Buying back shares is what you're asking I think Neal yeah, Yeah, that's right that's right.

Speaker Change: It is an option. I mean, all alternatives are sitting out there for us. We don't have to do anything. There's no gun to our head either way. And we'll consider that as we consider a shareholder return program at some point down the road.

It is an option I mean, all alternatives are sitting out there for us we don't have to do anything there's no gun to our head either way and we will consider that as we consider our shareholder return program at some point down the road.

Speaker Change: Okay, so I guess that's where I was going with this last question is just when you look at where your share is and I'm sure you, Mark, run kind of how you're coming up with an asset value on those versus what you're seeing in the market, do you think there's one looking quite a bit more attractive? I mean, our deals, I guess in the other way, just to ask you about M&A, our deals are now starting to get more expensive, given the strip, and your best method is your shares over deals. I mean, I'm glad you got the deals that you did, I'm just curious on how you see deal prices out there today versus kind of how your shares are trading.

Okay. So I guess, that's where I was going on this last question is just when you look at where your shares and you know I'm sure you've run kind of how you're coming up on the asset value on those versus what you're seeing in the market do you think theres. One one is looking quite a bit more attractive deals I guess another way just asked about M&A or deals now starting to get more expensive given the strip and you know you best.

Method does your shares or deals that I'm glad you got the deals that you did but just curious on how you see deal prices out there today versus kind of how your shares are trading.

Mark Lumpkin: Yeah, there's basically a huge disconnect, as you can imagine. We think there's a lot of value in our stock that isn't being appreciated. I would say that it's really tough to do M&A or A&D transactions in a price environment like this.

Yeah, Theres basically a huge disconnect as you can imagine we think theres a lot of value in our stock that is being appreciated our I would say that it's really tough to do.

M&A or A&D transactions in a price environment like this we need some stability.

Mark Lumpkin: We need some stability. I don't know when that's going to happen. Nobody's.

When that's going to happened nobody's, probably buying or selling based or nobody's buying on the current strip price for $100 for for 2022.

Mark Lumpkin: Probably buying or selling based or nobody's buying on the current strip price for you know $100 for for 2022 we'll be very cautious about the way we look at transactions and Definitely use something other than the current strip price At least in the near term and and maybe the back end of the curve is about right So it's going to take some some stability in the market to make the A&E market a little bit easier

We'll be very cautious about the way, we look at transactions and.

Definitely use something other than the current strip price at least in the near term and maybe the back end of the curve is about right. So it's going to take some.

Some stability in the market to make the A&D market.

Little bit easier.

Got it thank you Buddy.

Thanks.

Thank you our next questions come from the line of Jeffrey Campbell with Alliance Global Partners. Please proceed with your questions.

Speaker Change: Thank you. Our next questions come from the line of Jeffrey Campbell with Alliance Global Partners.

Jeffrey Campbell: Good morning and congratulations on the recent flurry of successful acquisitions. Robert, kind of picking up on what you just said about commodity volatility, I have to ask with the confluence of world events and the current very high.

Good morning, and congratulations on the recent flurry of successful acquisitions.

Robert kind of picking up on what you just said about the commodity volatility.

Yes.

It was the confluence of world events, and the current very high oil prices.

Is there any temptation to increase capital investment in the future subject to any gating items that you might want to identify.

Robert John Anderson: Oh, good. I thought you were going to ask something about are we considering doing a bunch of hedges now at this price, which we talk about that all the time. Activity-wide.

Oh, good I thought you were going to ask something about you know are we considering doing a bunch of hedges now at this price, which we talk about that all the time.

No.

So activity wise.

Robert John Anderson: Yeah. Activity-wise, you know, I think we need, again, a couple of quarters of execution on the Delaware asset, make sure that we're all really comfortable that we can run before we start walking, which we'll get there. I'm convinced that won't be an issue. We just need some time.

Yeah activity Wise, you know I think we need again, a couple of quarters of execution on the Delaware asset make sure that we're all really comfortable that we can run before we start walking, which we will get there I'm convinced that won't be an issue, we just need some time.

Robert John Anderson: Not that there's any issues today, but, you know, before we ramp up production, I mean, ramp up activity there, I just want to have a couple of quarters of, you know,

Not that there's any issues today, but you know before we ramp up production ramp up activity. There I just wanted to have a couple of quarters of you know.

Robert John Anderson: as flawless as you can get. On the Midland side, we could. But again, I think we're focused on getting our balance sheet and our leverage ratio.

As flawless as you can get on the Midland side, we could.

But again I think we're focused on getting our balance sheet and our leverage.

<unk> ratio under one by the end of the year and with the improvement in prices or the increase in oil prices, maybe that happens a little sooner and so we could think about it. So it is some things we're looking at in terms of accelerating activity, but we're not going to pull the trigger on that.

Robert John Anderson: under one by the end of the year. And with the improvement in prices or the increase in oil prices, maybe that happens a little sooner and so we could think about it.

Robert John Anderson: It is some things we're looking at in terms of accelerating activity, but we're not going to pull the trigger on that in the near term, for sure.

In the near term for sure.

Yeah.

Very helpful.

Speaker Change: think you already sort of alluded to this but let me ask this question anyway. On slide 15 you illustrate a capital program that is significantly weighted to the middle.

You've already sort of alluded to this but let me ask this question anyway on slide 15, you illustrate a capital program that is significantly weighted to the Midland Basin is this what we should broadly expect over the next.

Several quarters or so.

Speaker Change: a year or two, or could the Delaware Basin attract more capital as...

Year, or two or could the Delaware basin driving more capital as you gain familiarity with the operations there.

Speaker Change: I actually had this conversation driving in this morning with one of our guys in terms of planning and

Yeah, I actually had this conversation driving in this morning with one of our guys in terms of planning and.

Speaker Change: As you know, the Delaware Basin, the northern portion, is on federal acreage. It takes a little bit longer to plan out programs there. It's great rock, good economics.

As you know the Delaware basin in the northern portion is on federal acreage it takes a little bit longer to plan out programs there.

It's great rock good economics.

Speaker Change: I wouldn't be surprised in a year that we have more activity there, not maybe in dollar sense but definitely more activity than we have today. Maybe we're drilling bigger pads or what have you, but it's a great place to spend capital and after we get a little bit more familiarity, like you said, we could spend some more capital there for sure.

I wouldn't be surprised.

The year that we have more activity there not maybe in dollar sense, but definitely more activity than we have today.

Maybe we're drilling bigger pads or what have you but.

It's a great place to spend capital and after we get a little bit more familiarity like you said, we could spend some more capital there for sure.

Speaker Change: Great. This could go into the thinking too hard category, but on the same slide, you illustrate.

Okay great.

This could go into the thinking too hard category, but on the same slide.

You illustrate a rig granite in Iran County, I just wondered if this suggests that tracker.

Speaker Change: I wondered if this suggests the tracker might be attracting some capital.

Tracking some capital in 2022.

Speaker Change: It is. It's actually, we're drilling a five-well pad down there right now, and drilling two different intervals in the wolf camp. We'll see how those turn out. Economics look good. Our data from offset wells that we now own look good, so that's why we put a rig down there. It won't stay there for the whole year. It's going to drill, like I said, a five-well pad, and then we'll move out of there. And we could move back towards the end of 22 and drill another pad.

It is it's actually we're drilling a five well pad down there right now and drilling two different intervals in the Wolfcamp, a well see how those turn out the economics look good our data from offset wells that we now own look good. So that's why we put a rig.

There it won't stay there for the whole year, it's going to drill like I said, a five well pad and then we'll move out of there and we could move back towards the end of 'twenty two with drill another pad.

Speaker Change: Great. Well, last one I'll ask, I'm going to approach the return to capital shareholder.

Okay great.

Last one I'll ask I'm going to approach the return of capital to shareholders a little bit differently.

Speaker Change: If you can provide some color on what you see as the relevant merits of a dedicated dividend or a special dividend or share repurchases, I think that would be helpful.

If you could provide some color on what you see is the relative merits of.

Dedicated dividend or a special dividend or share repurchases I think that would be helpful.

Okay, well, let me just say one thing first.

Speaker Change: The buyback is probably the lowest alternative because we're 2 thirds held by some really good shareholders and investors and board members. How about that? And then the other two, I'll let Mark chime in here because I've been doing all the talking.

The buyback is probably the lowest alternative because we're two thirds held by.

You know some really good shareholders and investors and board members, how about that and then the other two I'll, let mark chime in here because I've been doing all the talking.

Yeah, I was just going to say Jeff.

Mark Lumpkin: Yeah, I was just going to say, Jeff, we've got a ton going on right now, and we're kind of nose to the ground in terms of getting Chisholm integration completely done, getting Bighorn closed, and as Robert mentioned, getting a quarter or two under our belts of things operating pretty smoothly.

Got a ton going on right now and we're kind of nose to the ground in terms of getting Chisholm integration completely done getting big Horn close and as Robert mentioned getting a quarter or two under our belts are things operating pretty smoothly.

Speaker Change: Those are great questions in terms of, hey, if you're thinking about shareholder returns, where do you get? We do think about that, but we are not at a point where we're really even doing any

Those are great questions in terms of hatred thinking about shareholder returns, where do you get we do think about that but we're not at a point, where really even doing any <unk>.

Speaker Change: real analysis between one option versus the other. That will naturally come if things go as we think they will later in the year. We don't really have any.

Real analysis between one option versus the other that will naturally come if things go as we think they will later in the year, we don't really have any.

Speaker Change: opinion one way or the other on regular dividend, if so what size, versus special dividend, etc.

[noise] opinion, one way or the other on regular dividend, if so what size versus special dividend et cetera.

Speaker Change: Okay, great. Well, that's fair, and it's pretty hard to complain about what you're doing presently, so.

Okay, great well, that's fair and it's pretty hard to complain about what you're doing.

So stick to your knitting. Thank.

Thank you Jeff Thanks, Jeff.

Yeah.

Speaker Change: Thank you. Our next questions come from the line of Scott Hanold with RBC. Please proceed

Thank you. Our next question is coming from the line of Scott Hanold with RBC. Please proceed with your questions.

Scott Hanold: Yeah. Hey, you all mentioned that the forward program gets you into that single-digit growth rate over the next few years. And as you kind of big picture think about longer-term strategy, what is the strategy you guys want to sort of develop? What do you think the optimal mid- to long-term pace for you all is?

Yeah, Hey, you all mentioned you know that our forward program gets you into that single digit growth rate over the next few years and as you kind of Big picture think about you know longer term strategy. What is the strategy you guys want to sort of develop like what do you think the optimal.

Mid to long term pays for you all is.

Speaker Change: It's probably in the single digits, Scott, somewhere, but, you know, depending on how things work out in New Mexico, and if, like, I'm viewing that

It's probably in the single digits, Scott somewhere, but depending on how things work out in new Mexico and if if.

Like I'm viewing that.

Speaker Change: we're really excited about what's happening out there with results, then we're going to spend more capital out there and maybe we have a little bit higher growth. But, you know, today where we sit,

We're really excited about the.

Whats happening out there with results then we're going to spend more capital out there than maybe we have a little bit higher growth but.

Today, where we sit.

Speaker Change: running four rigs for the foreseeable future, it's just low single-digit growth and throwing off a lot of cash and getting our leverage below one and all the things we've already kind of talked about. Scott, when we run our models, it's static. It's not assuming further acquisitions and we've certainly made some very significant steps here in the past year and a half. When we think about things going forward...

Running four rigs for the foreseeable future, it's just low single digit growth and throw an awful lot of cash and getting our leverage.

Below one and.

All the things we've already kind of talked about Scott when we run our models, it's static assuming further acquisitions and we've certainly made some very significant steps here in the past year and a half.

When we think about things going forward on.

Speaker Change: on a status quo, that's sort of what things look like, but we don't think we're done on the acquisition front. Are we pausing a bit to digest things? Absolutely. And do we feel different about acquisitions when oil's

On a status quo, that's sort of what things look like but don't think we're done on the acquisition front.

Are we pulse on a bit to digest things absolutely.

Do we feel different about acquisitions when oils.

Speaker Change: hitting 120 on the screen than when it's hitting 60, absolutely. But there's still a ton for us to do to get to the decision point, even anything in terms of adding a rig or dropping a rig or moving a rig around. So we're thinking about all these things, but it's just a little bit premature for us to really go stick our flag in the ground of what we think the next even two or three years looks like.

120 on the screen that when it's hitting 60, absolutely, but there's still a ton for us to do to get to the decision points either.

Anything in terms of adding a rig or dropping a rig or moving a rig around so we're thinking about these things, but it's just a little bit premature for us to really go.

Stick our flag in the ground of what we think the next even two or three years looks like.

Speaker Change: Okay. And then could you just give a little bit more color on the, you know, the AMD market right now? You know, it does sound like you're, well, let me ask you the question this way.

Okay, and then could you just give a little bit more color on on the you know are the the A&D market right now.

It does sound like you're well, let me ask you the question this way.

Speaker Change: You know, do you find that there is more opportunity, a bigger opportunity set in the Delaware now than the Midland? And like, what is the biggest kind of...

Do you find that there there is more opportunity a bigger opportunity set in the Delaware now than the Midland and like what is the biggest kind of.

Speaker Change: you know, issue between the bid-ask spread right now? Is it just the PDP at strip price or do counterparts want to get paid for inventory plus, you know, strip PDP?

Issue between the bid ask spread right now is it just the PDP at strip price or do car parts wanting to get paid for inventory plus strip PDP.

Speaker Change: Yeah, that's a that's a loaded question with a lot of pieces to it, Scott. So, you know, our my view is that there are a lot of opportunities in Delaware Basin. It's less consolidated than the Midland Basin, but they both have a number of, you know, things that are sitting on our board that we look at and consider as opportunities.

Yeah. That's a that's a loaded question with a lot of pieces to it Scott. So our my view is that there are a lot of opportunities in Delaware basin, it's less consolidated.

Then the Midland Basin.

But they both have a number of you know.

Things that are sitting on our board that we look at and consider as opportunities it with the volatility that we've seen in the last months.

Speaker Change: With the volatility that we've seen in the last month, activity is stalled. I won't say it's slowing down or it's not accelerating for sure, but there's deals that are kind of stalled out because of where prices are. And I suspect that's bid-ask.

Activity is stalled I wont say its slowing down or you know, it's not accelerating for sure. But there is deals that are kind of stalled out because of where prices are and I suspect. That's bid ask and then there is the deal flow is sort of slow advances come out is as much as I thought it would be.

Speaker Change: And then there's the deal flow is sort of slow to come out as much as I thought it would be in the first quarter when we were working on December kind of activities and A&D things.

In the first quarter.

When we are working on December kind of activities and in an A&D things.

Speaker Change: I think the difficulty is just, we don't mind leaning in and paying for inventory, but you're going to do that at a much lower than current strip price, and then PDP becomes a problem when you've got this much volatility and the buyer universe isn't going to

Yes.

I think the difficulty is just you know, we don't mind leaning in and paying for inventory.

But youre going to do that at a much lower than current strip price.

And then PDP becomes a problem when you got this much volatility in the buyer universe isn't going to.

Speaker Change: put on a near-term price deck of $120. So that creates just a difficult A&E market.

Put on you know near term price deck of $120.

So that creates just a difficult A&D market.

Speaker Change: OK, makes sense. And then just quickly, I think last quarter you made the comment that OFS inflation, you're seeing 10% to 15%. Can you remind us what's in the budget? So I'm just kind of curious on how that's changed in the last, say, three to four months.

Okay makes sense and then just quickly I think the latter.

Corey you made the comment that.

M O F S inflation, youre seeing 10% to 15% can you remind us what's in the budget. So I'm just kind of curious on like how that's you know no change.

Change in the let's say three to four months.

Speaker Change: Yeah, there's definitely some further inflation baked into the budget. If you look at what we put up there from a 2020 capital side, just on the Midland side, you can sort of back into, uh, $800 per.

Yeah, there's definitely some further inflation baked into the budget. If you look at what we put out there from a 2020 capital side just on the Midland side, you can sort of back into.

$800 per.

But completed.

Speaker Change: On the Midland side, Robert or Steve just mentioned, we just finished something up that was a bit under $700. They're absolutely higher now than they were 30, 60 days ago or 90 days ago. So we've got a little bit more baked in there. I mean, it's sort of about 10 to 15 percent throughout the year baked in. And certainly with prices like they are, there's...

On the Midland side.

Robert or Steve just mentioned, we just finished up that was a bit under 700.

They are absolutely higher now than they were 36 days ago or 90 days ago. So we got a little bit more baked in there I mean, it's sort of a.

About 10 to 15 set 15% to 15% throughout the year, we baked in.

And certainly with with prices like they are there's.

Speaker Change: No great way to feel confident as bookends, but we do have some inflation built in.

No great way to feel confident as book ends, but we do have some some inflation built in.

Okay.

Understood. Thank you.

Speaker Change: Thank you. Our next questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.

Thank you our next questions come from the line of Charles Meade with Johnson Rice. Please proceed with your questions.

Yeah.

Good morning, Robert you and the whole team there.

Charles Meade: I appreciate your commentary on inflation.

Hey, Charles.

I wanted I appreciate your commentary around inflation and and and.

And I. Thank you for being so clear on that but I also I wanted to ask.

Charles Meade: being so clear on that, but I also wanted to ask a related question on service availability.

Lady question.

On service availability in and it really the question is how concerned are you about about service availability in this environment and I'm thinking, particularly perhaps on on Frac fleets, because you guys are or not.

Charles Meade: And really, the question is, how concerned are you about service availability in this environment? And I'm thinking particularly perhaps on frack fleets, because you guys are not a little bit shy of running one rig continuously on either side.

A little bit shy of running one rig continuously.

On either side of the basin as it looks for me. So what what's up is that something we should be worried about or is that something you worry about them at all.

Charles Meade: So what's up? Is that something we should be worried about or is that something you worry about at all?

Speaker Change: I don't worry about it. Steve's here so he can answer it probably more completely, but I'll tell you we've got a long relationship on our side with our frack pressure pumper.

I don't worry about it Steve is here. So he can answer it probably more completely but I'll tell you. We've got a long relationship on our side with our Frac.

Pressure pumper.

Speaker Change: and all the ancillary services there. So they know our schedule. And we're sort of locked in for the year on that. And then on the Delaware Basin assets, obviously we don't have that same history and track record. But they were using a large frac company. And again, they know what the plan is for the year.

And all of the ancillary services there so they know our schedule and were sort of locked in for the year on that and then on the Delaware Basin assets. Obviously, we don't have that same history and track record but.

They were using a large frac company and again they know what the plan is for the year and we're not going to deviate too much from that plan. So that side of it other than the sand doesn't keep me up at night, Steve What keeps you up at night.

Speaker Change: We're not gonna deviate too much from that plan. So that side of it, other than the sand, doesn't keep me up at night. Steve, what keeps you up at night?

Steve Collins: Well, it is something to worry about, but you can let us worry about that. I think we're going to be okay.

Well it is something to worry about but you can let us worry about that I think we're going to be okay.

Steve Collins: What I mean is that we create these relationships like Robert's talking about, and I hope that our culture and how we do business out there makes all these service companies want to come to us first.

Well I mean is that we create these relationships like Robert was talking about and I hope that our culture and how we do business out there makes all these service companies want to come to US first so far that's been the case I know it is on the Midland Basin pressure pumping side, we need to still go out and create those relationships in new Mexico.

Steve Collins: So far, that's been the case. I know it is on the Midland Basin pressure pumping side. We need to still go out and create those relationships in New Mexico.

Steve Collins: But you hear every day of people struggling to get services. So far, we've been okay, and I expect us to keep being okay.

But you hear every day if people have struggling to get services. So far we've been okay, and I expect us to keep being okay.

That is helpful insight in your operations Steven and then this one is.

Speaker Change: That is helpful insight in your operation, Steve. And then this one's perhaps for you, because it goes back to your prepare comments, but I'll just go to any of you guys. You mentioned the Wolf Camp C in the Midland Basin. I'm just curious, how prominently does that figure in the 22 drilling plan, and how prominent is it in your overall inventory on the Midland Basin?

Perhaps for you because it goes back to your to your prepared comments, but I'll just talk to anything you guys. You you mentioned the the Wolfcamp C and in the Midland Basin I'm, just curious how prominent how prominently does that figure in the 'twenty two drilling plan and and how prominent is it in your overall.

Inventory on the Midland Basin side.

Uh huh.

Speaker Change: probably drill one or two more sea wells in 22 as we get back to that Upton County area. It's a very, for us, it's a very localized geologic phenomenon that works really well in one area. This isn't, you go back several years.

Probably drill one or two more C wells in 'twenty, two as we get back to that Upton County area. It's a very low for us. It's a very localized geologic phenomenon that works really well in one area. This isn't.

You go back several years.

Speaker Change: to a famous sea well in Reagan County. It was drilled by an operator that is no longer in that same name. And the well was fantastic. Our wells are a little bit different geologically, and we've drilled some other wells in Reagan County or participated in wells in Reagan County in the sea that aren't the same. This is a little bit different and and we like it, but it's not a big piece of our overall inventory. It's not even a third of our Upton County inventory.

Two a famous C well in Reagan County that was drilled by an operator that is no longer in that same name.

And the well was fantastic our wells are a little bit different geologically and we've drilled some other wells in Reagan County are participated in wells in Reagan County, and the C that arent. The same this is a little bit different and and we like it but it's not a big piece of our overall inventory.

No not even a third of our Upton County inventory so.

Got it that's the details looking for thank you.

Speaker Change: Thank you. Our next question has come from the line of Subhash Chandra with Benchmark.

Thank you our next questions come from the line of Sue Bash Chandra with benchmark. Please proceed with your questions.

Subhash Chandra: The first one is on the borrowing-based utilization pro forma for Bighorn. With the convertible preferred

Yes. Thank you first one is on the borrowing base utilization pro forma for big Horn.

With the preferred convertible preferred I'm trying to wrap my head around that if you can help and then on and I think you mentioned that you know.

Subhash Chandra: to wrap my head around that if you can help and then on and I think you mentioned that you know based on the timing the actual acquisition costs will be lower from a cash perspective.

Based on the timing the actual acquisition costs will be lower from a cash perspective.

How close to the.

Subhash Chandra: 1.325 do we get with peak borrowing?

1.3 to five.

Can we get.

With peak borrowings.

Sure.

Speaker Change: Sure, maybe let me hit the convertible preferred first.

Maybe let me hit that confer the convertible preferred first so that's the pipe that we did around the big Horn transaction, that's what the Encap and post oak and that's $280 million of cash they're putting in an equity ultimately that should get converted into class a shares a sequence of events and timing and sort of <unk>.

Speaker Change: So that's the pipe that we did around the Bighorn transaction, that's with NCAP and Post Oak.

Speaker Change: And that's $280 million of cash they're putting in equity. Ultimately, that should get converted into Class A shares. A sequence of event and timing and sort of NYSE approval standpoint requires that that goes to a shareholder vote. We have the vote already in hand, but that still has to formally happen.

NYSE approval.

Approval standpoint requires that that goes to a shareholder vote, we have the vote already in hand, but that still has to formally happen. There is something that some lawyer could imagine that would cause that to not happen but.

Speaker Change: There is something that some lawyer could imagine that would cause that to not happen.

Speaker Change: But it's not anything you would consider any real practical risk. So that effectively is class A common shares, but they won't get converted until sometime in probably the summer.

But it's not anything you would consider any real practical risk. So that effectively is class a common shares but they won't get converted until sometime in probably the summer.

If that helps on the borrowing base and liquidity.

Speaker Change: if that helps. On the borrowing base and liquidity, so right now, we've got about $650 million drawn. That includes our having paid a deposit.

So right now we've got about $650 million drawn that includes our having paid a deposit.

Speaker Change: Total on Bighorn, we think the purchase price adjustment, which is basically three and a half months of kind of free cash flow, will be over $100 million, so that's going to reduce the cash need at closing of Bighorn in April . We think, roughly speaking, on the day we close Bighorn, we're about a billion.

Total on Bighorn, we think the purchase price adjustment, which is basically three and a half months of kind of free cash flow.

We'll be over $100 million, so that's going to reduce the cash needed at closing a big Horn in April we think roughly speaking on the day, we close bighorn, where about a billion maybe just a tad higher 1 billion O. Two five of drawn RBA L versus the one $3 billion to $5 billion and Thats clearly high we are.

Speaker Change: maybe just a tad higher, $1.025 billion of drawn RBL versus the $1.325 billion. And that's clearly high. We are monitoring the markets and at some point it probably makes sense to issue a high yield. We're going to keep looking at that and that is on the radar. There's a lot more wood to chop in other areas.

Stirring the the markets and at some point it probably makes sense to issue a high yield we're going to keep looking at that and you know that is on the radar. There is a lot more wood to chop in the other areas currently.

Speaker Change: currently, but that is an option too where we could term out some of the RBL debt and have a lesser amount drawn on the RBL.

But that is an option to where we could term out some of the RBS debt would have a lesser amount drawn on the RVO.

Speaker Change: Okay, excellent. The second is, you know, from a reserve report,

Okay excellent.

The second is that you know from our reserve report.

It seems to me there was negative revisions, but then there was strong extensions discoveries.

Speaker Change: It seems to me, so there was negative performance revisions, but then there was strong extensions discoveries. It seems to me maybe, you know, there was some spacing elements on pre-booked, but that was, you know, exceeded by fresh bookings.

It seems like maybe you know there were some spacing elements.

On pre book, but that was you know exceeded by fresh bookings.

Speaker Change: Is that the correct interpretation, or how should I sort of put the performance?

Is that the correct interpretation on how should I sort of put the performance revisions in the context.

Speaker Change: You got it, Subhash. I mean, you drill in areas, and you've got a type curve going into it. And it's based on all the data you've got, which a lot of times is different spacing and wells that are not offset by other wells. And then you go into an area, and you're drilling what we call child wells or second.

You got it see Bosch I mean, it's.

You drill in areas and you've got a type curve going into it and it's based on all the data you've got which a lot of times.

<unk>.

Different spacing and wells that are not offset by other wells and then you go into an area and you're drilling what we called child Wells are second.

Speaker Change: wells in an area and they don't perform exactly like that type curve. So in some areas it went down, in some areas it went up. The sea is not a surprise, it's performed well. And then in other areas we got some nice enhancement and some new ads that we could make.

Well then in an area and they don't perform exactly like that type curve. So.

In some areas it went down in some areas. It went up the C is a surprise not a surprise it's performed well.

And then you know in other areas, we got some some nice enhancement and some new ads that we could make.

Okay got it and finally.

Speaker Change: I think you expressed to a number of the questions that were asked previously that there's an optimal activity level that's higher than where we are, the four rigs. Do you think of the world this way, like there's also an optimal production level at which you think that's possible? I think there's an optimal production level that's higher than where we are, the four rigs. I think there's an optimal production level that's higher than where we are, the four

I think.

You expressed but to a number of the questions that were asked previously that there is an optimal active.

Activity level, that's higher than what we are you know the four rigs.

Do you think of the World. It's way like there's also an optimal production level at which you know whatever it might be revenues coming in the door you know ease of.

Speaker Change: whatever it might be, revenues coming in the door, you know, ease of.

Speaker Change: budgeting and working capital and all that kind of stuff.

Budgeting and working capital and all that kind of stuff.

Speaker Change: production number that you think is optimal, and just to follow up on the optimal activity level, do we think of a six week program?

Production number that you think is optimal and just to follow up on the optimal activity level.

Do we think of.

Six rig program as being.

Oh and optimal case.

Speaker Change: We have not tried to optimize, because I'm not sure what bells and whistles we would turn for a production number.

We have not tried to optimize because I'm not sure what we're what bells and whistles, we would turn for a production number.

Speaker Change: Are we trying to keep production flat at 80,000 BOE a day? No, not really. It's A, we're inheriting two rigs on this ChISM acquisition. We got our own two rigs. If we just keep the status quo, what does our model kind of look like? And like we've mentioned, a little bit of growth in production.

Are we trying to keep production flat at 80000 BOE a day no not really it's a we're inheriting two rigs on this Chisholm acquisition, we got our own two rigs if we just keep the status quo. What is our model kind of look like and we like we've mentioned a little bit of growth in production. So.

Speaker Change: like we've already said, give us a couple quarters of.

Like we've already said give us a couple of quarters of working in new Mexico, and who knows what else, we buy but assuming we don't buy anything else.

Speaker Change: working in New Mexico and who knows what else we buy, but assuming we don't buy anything else, then we'll figure out what is optimum there based on our acreage position and how much activity we could have and the best reservoir development and things of that nature. I mean, we definitely have a plan. It's not, you know, we're not sitting here today without one, but to increase that plan, you know, takes a little bit of lead time and we're working through that right now. Okay.

Then we'll figure out what is optimum there based on our acreage position.

And how much activity, we could have in the best reservoir development and things of that nature. I mean, we definitely have a plan. It's not we're not sitting here today without one but to increase that plan. It takes a little bit of lead time, and we're working through that right now.

Okay, and if I could just ask that differently.

Speaker Change: I know you guys are return-driven, right? So you may not look at the world this way, but is there a production number if you're looking at acquisitions at which you're like, okay, you know, this is kind of a good steady state base of operations, 100,000 a day, 150,000 a day. Do you think of the world that way?

I know you guys are a return driven right. So you may not look at the world its way, but is there a production number with youre looking at acquisitions at which you're like okay.

This is kind of a good steady state base of operations 100000, a day 150000, a day do you think of the world that way.

Speaker Change: No, I look at opportunities to create value and if we can buy assets.

No I I look at opportunities to create value and if we can buy assets.

Speaker Change: you know, in Erie County at a nice discount and can operate them cheaper and get a bigger scaled business, then I think we all benefit, you know, as an Earthstone stakeholder. I don't put a target out there and say, okay, we've got to have 400,000 acres or we've got to have 15 years of inventory or we've got to hit 150,000 BOE a day. I think those are all outputs of, you know, your asset base.

In <unk> County at a nice discount and can operate them cheaper and get a bigger scaled business than I think we all benefit as an Earth stone stakeholder.

I don't put a target out there and say okay. We got to have 400000 acres or we got to have 15 years of inventory or we've got to hit a 150000 BOE a day I think those are all outputs of Av.

Your asset base.

Okay got it thank you.

Thank you as a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

Speaker Change: Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone.

Speaker Change: Our next questions come from the line of Jeff Robertson with Water Tower Research. Please proceed.

Our next questions come from the line of Jeff Robertson with water Tower Research. Please proceed with your questions.

Jeff Robertson: Thank you. Can you all talk a little bit about the LOE initiatives on both Chisholm, but maybe also on Bighorn?

Thank you can you all talk a little bit about the LOE initiatives on both Chisholm.

Chisholm, but maybe also on big Horn.

Jeff Robertson: you think you can lower LOEs over the course of this year or maybe heading into 2023?

You think you can lower eloise over the course of this year or maybe heading into 2023.

It sounds like you Steve.

Speaker Change: Sounds like you, Steve. Well, we're in the process of learning that and figuring out. I can tell you this, that looking at what they're spending, for example, the Bighorn Chemical Program is probably 20%, 25% higher than what we run in the Midland Basin.

We're in the process of learning that and figure it out but I can tell you this that looking at what their spending for.

For example, the Big Horn Chemical program is probably 2025% higher than what we run in the Midland Basin. So.

Speaker Change: We'll dissect each category and figure out what they're doing and maybe we can adapt some of our principles and, you know,

We'll dissect each category and figure out what they're doing and maybe we can adapt some of our principles.

And.

Go from there.

There's a lot of it is going to be mechanical whats been done what needs to be repaired that actually could increase production, which could help on the LOE per BOE side. So we've got a lot to figure out, but it's going to be taking what they're doing.

Speaker Change: A lot of it's going to be mechanical, you know, what's been done, what needs to be repaired.

Speaker Change: that actually could increase production, which could help on the LOE for BOE side. So we've got a lot to figure out, but it's going to be taking what they're doing and incorporating what we know works.

And incorporating what we know works best.

Yeah.

Yeah, I think that's I think that's it hey, Jeff if I can just add like just from a big picture standpoint on the Delaware Basin. The costs are just higher.

Speaker Change: Yeah, I think that's it.

And on the Bighorn assets Theres, not a bunch of flush production because they've not been drilling other than having completed some docs I guess in the fall last year.

Speaker Change: There's not a bunch of flush production because they've not been drilling other than having completed some ducks, I guess, in the fall last year.

Speaker Change: Neither one of those are going to get down to what our pre-acquisition LOE for BOE is.

Neither one of those we're going to get down to what are kind of pre acquisition <unk> per Boe. He is but I think what Steve is saying is that hey give us some time.

Speaker Change: But I think what Steve's saying is that, hey, give us some time, maybe this sounds like a repeat record, but give us a quarter or two to get these things digested.

Maybe just it sounds like.

Repeat record, but give us a quarter or two to get these things digested and Steve and team are already looking not just at the not just in the Delaware basin with the big hard assets to which we haven't even closed on yet of ways to drive some of those down we put out a range that we think is very reasonable yes, Steve goal is absolutely to be.

Speaker Change: And Steve and team are already looking, not just in the Delaware Basin, but the Bighorn assets too, which we haven't even closed on yet.

Speaker Change: of ways to drive some of those down. We put out a range that we think is very reasonable. Yes, Steve's goal is absolutely to beat that range, but it's a little bit hard.

That range, but it's a little bit hard to go figure out exactly what you can do until you've got the assets in your hands and you can have some ideas, but you've still got to have time to go execute on those things and certainly the goal is lower but.

Speaker Change: Go figure out exactly what you can do until you've got the assets in your hands. And you can have some ideas, but you've still got to have time to go execute on those things. And certainly, the goal is lower, but it's going to take some time to figure out how much is really possible. I'll add, there's also some...

But it's going to take some time to figure out how much is really possible.

I'll add there is also some synergies in just eat.

Speaker Change: geography out there. I mean, we literally have.

Geography out there.

We literally have.

Legacy Archstone leases right next to bighorn leases, so we will be incorporating that in and consolidating routes and.

Speaker Change: Legacy Earthstone leases right next to Bighorn Leases.

Speaker Change: So we'll be incorporating that in, and consolidating routes, and.

Speaker Change: We're not going to trip over one lease to go to another lease. So we got a lot to figure out on that, but I think there's going to be some efficiencies gained.

We're not going to trip over one lease to go to another leases. So we got a lot to figure out on that but I think theres going to be some efficiencies gained there.

Speaker Change: So that's a better discussion to have in November as you've owned those assets for four or five months and really start to think about what you can do for 2023.

So that's a better discussion to have in November as you've had owned those assets for four or five months and really start to think about what you can do for 2023.

Speaker Change: Yeah, I won't be guessing by then, I'll know what I can do and what I can't.

Yeah sure I won't be guessing by then I'll know what I can deal with it.

Speaker Change: Thanks. And one question, just since you've talked about rig activity.

Thanks, and one one question just since you've talked about rig activity.

Speaker Change: Given Earthstone's current size, is four rigs the right?

Given <unk> current size is four rigs the right.

Speaker Change: number? Could you run five? Could you run six comfortably without really stressing?

Number could you run five could you run six comfortably without really stretching.

The operations team.

Speaker Change: Well, Jeff, there's more to stress than just the operations team as you run more rigs.

Well, Jeff Theres more distressed than just the operations team as you run more rigs but.

Speaker Change: 4 is a good place to start for us, but I think we have the capability. And ultimately, when we get these sort of integrated and people right-sized, we're going to have the ability to run more, whether it's 5 or 6.

For us is a good place to start for us, but I think we have the capability and ultimately when we get these sort of integrated and people right sized we're going to have the ability to run more and whether it's five or six.

Speaker Change: We can continue to grow our staff and be able to do that. We've set the company up to manage a much bigger organization than we had two years ago, even a year ago, and we're making some strides now to even get it ready for

Can continue to grow our staff and be able to do that we've set the company up to manage a much bigger organization than we had two years ago, even a year ago.

And we're making some strides now to even get it ready for the.

Speaker Change: the next expansion. So let's close Bighorn and then walk for a little bit and then we'll pick up some activity, I'll bet.

The next expansion, so, let's close Bighorn and and then walk for a little bit and then we'll pick up some activity I'll bet.

Okay. Thank you very much.

Thanks.

Speaker Change: Thank you. There are no further questions at this time. I would like to turn the call back over to Robert.

Thank you there are no further questions at this time I would like to turn the call back over to Robert Anderson for any closing comments.

Robert Anderson: Hey, thanks, everybody. We appreciate your interest in the questions, and we'll talk to you again soon. Bye.

Hey, Thanks, everybody. We appreciate your interest in the questions and we'll talk to you again soon.

Robert Anderson: This does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.

This does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time enjoy the rest of your day.