Earthstone Energy, Inc., formerly Basic Earth Science Systems, Inc., a Delaware corporation, was formed in 1969, as a geophysical service company. As Earthstone Energy, Inc.’s predecessor, Basic’s history is outlined below.
- Mid-70s: Basic becomes a public company.
- 1980: Basic has first and only public stock offering.
- Early to Mid-80s: Basic pursues exploration drilling strategy.
- 1986: Basic caught with huge debt as oil prices collapse.
- Late 80s to Early 90s: Basic sells several key assets - pays off debt.
- 1993: Basic replaces long-time management.
- Early 90s to Early 2002: Basic begins decade of acquiring producing properties.
- 2002 to Present: Basic posts string of profitable quarters - reinvests cash into exploration drilling.
- February 26, 2010: Basic changed its name to Earthstone Energy, Inc.
Earthstone Energy, Inc., formerly Basic Earth Science Systems, Inc., a Delaware corporation, was formed in 1969, as a geophysical service company.
Despite success in generating some involvement in various ventures, in 1973 Basic
exchanged corporate stock for marginally producing wells in Louisiana to become a producing company. With these wells, escalating oil prices and the partial success of its “geophysical swap” strategy, revenue from oil and gas production soon generated the majority of the Company's cash flow. As a result, by 1980 Basic was completely out of the “services” side of the industry.
By 1975, the corporate stock, distributed in 1973, became so disseminated that Basic de
facto became a “reporting company” under Securities and Exchange Commission (SEC)
regulations. In 1980, the Company held its first and only public stock offering raising
By the early 1980s, the Company was heavily involved in exploration drilling, primarily in
Colorado, Wyoming and North Dakota, along with development drilling in its West Cole field
waterflood units in south Texas. These efforts were partially funded by investors who
participated in these ventures, and who were enticed by the tax benefits that Basic structured into these deals. These efforts were modestly successful in the $35 to $38 price environment which then existed. The Company continued this strategy until 1986.
In 1986, with the changes in the tax laws and the collapse in oil prices, Basic was caught
with $4.2 million in debt; an enormous amount relative to the decimated value of its oil and
gas reserves. With the loss of its investor base, two rounds of personnel lay-offs and salary reductions for remaining employees, Basic's exploration strategy was effectively ended and the Company was relegated to repayment of its debt.
This was accomplished over a six year period by the sale of producing assets. And by 1992, the debt had been repaid – dollar for dollar – with interest.
Although relieved of the burden of debt, Basic's assets had been impaired to the point that it had little ability, cash flow or risk tolerance to again pursue exploration drilling. In early 1993, following the de-listing of its stock from NASDAQ, the board of directors replaced the Company's long-time, exploration-oriented president and a new era of management and philosophy was begun.
Not interested in diluting existing shareholders, nor in exposing the fragile Company to high risk, company-killing ventures, the new management was limited to few options. Thus began a decade long strategy of acquiring producing assets. These modest acquisitions, funded with bank debt, today form the core of Basic's producing assets and provided the springboard for Basic's current revival.
Since 2000, with consistently improving commodity prices, the market for producing oil and gas properties has become extremely competitive and inflated. Because of this, Basic has once again returned to the “drill bit” in its search for new reserves. Unlike the “go-go” years of the 1980s, this current revival of drilling effort is founded on an arsenal of improved
technological tools (3-D seismic, horizontal drilling, improvements in hydraulic stimulation,
and most importantly computer assisted design, simulation and modeling. In addition, because tax write-offs are not nearly as lucrative under current laws, wildly speculative ventures are not so prevalent and “tax-shelter investors” are not part of the equation. And, because it is now it's shareholders money that is at risk, the Company has taken a much more conservative approach to investment. Finally, unlike the 1980's, Basic has funded its exploration drilling with existing cash, not debt; leaving it not as vulnerable to a downturn in commodity prices.
Since March of 2002, with consistently improving commodity prices, Basic has posted a
string of profitable quarters. Investing its improving cash flow into new ventures, the Company now enjoys an unprecedented rate of growth and profitability.
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