Earthstone Energy (ESTE) Update - Nov 26

[dan_s]

I have completed my review of the Earthstone profile and my valuation stays at $21. ESTE is currently trading at $9.56.
Earthstone has ~81% of their Q4 crude oil hedged at $50.63/bbl and none of their NGLs hedged (~29% of production), so today's commodity price moves have no impact on my valuation. In fact, the revenue boost that Earthstone is getting on NGLs will more than offset the lower oil price on 19% of their crude oil production. Earthstone is going to get a BIG revenue boost in Q1 2022 from high natural gas and NGL prices. They will be completing several high rate horizontal wells late in Q4 and early in Q1.

I expect Earthstone to stick to a two-rig drilling program in 2022 as they have over 600 low-risk / high-return horizontal drilling locations in the Permian Basin and Eagle Ford. Operating cash flow will more than cover their drilling program.

Earthstone is the smallest company in the Sweet 16, so I've decided to move it back to our Small-Cap Growth Portfolio just to make room for some larger companies that deserve a promotion to the Sweet 16. As you can see from my valuation, this has nothing to do with this company's potential.

If you are worried about oil prices now may be a good time to add companies like ESTE that have a lot of oil hedged and little of their natural gas and NGLs hedged. Oil has pulled back on FEAR of a new Covid Variant (being used to keep the sheep afraid). Travel restrictions have very little impact on demand for natural gas and NGLs.

The updated profile and forecast model for Earthstone will be posted to the EPG website this afternoon; Sabrina is out shopping this morning. I'm lucky that my wife (Susan) hates shopping on Black Friday. Can we still call it "Black Friday" in "Woke American"???

All of the Sweet 16 profiles have been updated and they can be found on the EPG website. My attention turns to the newsletter.