American Oil and Gas Reporter - July 2017 - 42

SpecialReport: Industry In Motion
Continuing To Grow

The Bold III combination was the third transaction that
Earthstone has closed successfully since Lodzinski joined the
company in late 2014-the start of a prolonged down cycle in
commodity prices that did not deter Earthstone from executing
its growth strategy. In fact, Lodzinski came to The Woodlands,
Tx.-based company through another strategic combination with
Oak Valley Resources, which he had led from its formation in
December 2012 until the closing of its combination with
Earthstone in December 2014.
"We have continued to increase our production, reserves
and drilling inventories," comments Lodzinski, noting that the
latest deal adds more than 500 gross operated "high-potential"
proved and probable locations to inventory.
"We expect the number of locations to increase with further
derisking of Spraberry and Wolfcamp intervals. Additionally,
we are excited about the upside in reserves and returns being
realized from our 'Gen IV' optimized completion design," he
reports. "We believe we will continue to see well productivity
and reserve increases from ongoing improvements in completion
techniques."
According to Lodzinski, the company brought on line seven
gross horizontal Wolfcamp A, Upper B and Lower B wells

Acreage Legend
Earthstone (Lynden)
Bold

Earthstone Energy began its move into the Midland Basin in
2016 with the all-stock acquisition of Lynden Energy and its nonoperated position in 5,883 net acres in Texas's Howard, Glasscock, Martin and Midland counties. In May, Earthstone
completed an all-stock "up-C" transaction to strategically combine with private equity-backed Bold Energy III and its 21,000net acre operated leasehold in the heart of the Wolfcamp
horizontal play in Texas's Reagan, Upton and Midland counties.

42 THE AMERICAN OIL & GAS REPORTER

with Gen IV completions during the first four months of 2017.
On average, the wells had 8,251-foot laterals and were completed
with 51 stages (166-foot stage spacing) and 2,267 pounds of
proppant per foot. The peak 30-day initial production rates of
its newest wells averaged 992 barrels of oil equivalent a day, or
120 boe/d per 1,000 feet of completed lateral.
Earthstone Energy began its move into the core of the
Midland Basin by establishing a nonoperated position with the
acquisition of Lynden Energy in 2016, giving it 5,883 net acres
in Texas's Howard, Glasscock, Martin and Midland counties
operated by a leading Permian producer. Following that deal,
Lodzinski says, Earthstone worked diligently to secure and
close a significant operated property. That objective was achieved
with the up-C transaction, giving Earthstone an operating
position in the red-hot Midland Basin to add to its existing
operated position in the Eagle Ford and its nonoperated positions
in the Permian and Bakken.
"We always have been rabid about operations," he comments.
"Historically we have operated 75-80 percent of our assets.
The Bold III combination brought us back up to the mark and
we will continue to focus on operated acreage going forward."
Record Of Success

In addition to establishing Oak Valley and managing Earthstone, Lodzinski's 43-year career includes serving in executive
leadership roles at a number of successful startup oil and gas
companies that eventually were sold to or merged with larger
operators. "Our strategy historically has been to build and sell,"
he offers. "Our exit strategy is to sell the company at a significant
premium and give shareholders liquidity in the public markets
so that they can take profits."
He says the strategy he and his team follow is simple. "Do
not get overleveraged and control your operating costs,"
Lodzinski states. "When commodity prices turn, if you continue
to control your cost structure, everything you have done in the
past lifts the entire boat."
Earthstone's management team historically has acquired
acreage for equity where possible, or acquired acreage by
raising equity where needed, Lodzinski goes on. "We are careful
to use debt appropriately to develop assets and increase cash
flow without overleveraging," he notes. "We do not like to
complicate our balance sheet with too much high-yield and preferred stock. By managing operations and costs, we have
positioned ourselves for accretive acquisitions."
Both the Bold III and Lynden acquisitions were common
stock transactions. "If we can build our market capitalization
through these transactions and show that we have a clear path
to propel double-digit growth, we can raise the development
capital to drill and complete wells efficiently," he explains.
"The Permian Basin has proven to be the primo basin for
profitable operations during the downturn."
As Earthstone attracts additional shareholders, institutional
investors and increases float and volume in shares, it expects
additional liquidity in its shares. "If we perform and add
economic production and good gross margins, our share price



American Oil and Gas Reporter - July 2017

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