Earthstone Energy Q2 Results - Aug 7

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Earthstone Energy Q2 Results - Aug 7

Post by dan_s »

Second Quarter 2019 Highlights with my comments in blue - Dan

Average daily production of 12,699 Boepd, 61% oil, 13% above the first quarter of 2019 and 44% above the second quarter of 2018, and a Company record level of daily production < Q2 production beat my forecast (11,250 Boepd) by a wide margin.

Adjusted EBITDAX(2) of $33.6 million, a 4% increase over the first quarter of 2019 and 64% above the second quarter of 2018, and a Company record level of quarterly Adjusted EBITDAX

Adjusted EBITDAX(2) per Boe of $29.11

Generated an Operating Margin of $29.27 per Boe ($33.25 including realized hedge settlements)

Capital expenditures of $31.1 million representing 15% of updated guidance with expected 2019 total capital expenditures of $205 million

Net income of $19.5 million, or $0.30 per Adjusted Diluted Share

Adjusted net income of $14.9 million, or $0.23 per Adjusted Diluted Share < Compares to my forecast of $8.8 million net income 0.14/share).

Entered into Wellbore Development Agreement (“WDA”) on eight wells in 2019 with an unaffiliated industry partner providing enhanced returns to the Company and accelerating development
Dan Steffens
Energy Prospectus Group
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Earthstone Energy Q2 Results - Aug 7

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Note from John White at Roth Capital 8-7-2019

Our valuation is based on a net asset value (NAV) analysis which produced $11.86 per share, which we adjusted higher to derive our price target of $12.00.

ESTE: Significant Beats on Production, Adj. EPS/EBITDA: Positive

ESTE reported 2Q 2019 production of 12,699 BOE per day, significantly beating our figure of 11,514 BOE per day and the consensus estimate of 11,280 BOE per day. ESTE reported 2Q 2019 adjusted EPS/EBITDA of $0.23/$33.6 million, again exceeding our estimates of $0.21/$31.5 million and the consensus figures of $0.18/$31.6 million.

ESTE is guiding to a 2019 production exit rate in a range of 14,000 BOE per day to 15,000 BOE per day with a midpoint of 14,500 BOE per day. Using the midpoint this is an eye-catching 13% increase over our 4Q 2019 estimate of 12,820 BOE per day. Full year 2019 production guide is being increased modestly, from a previous range of 11,00 BOE per day to 12,000 BOE per day to a new, higher range of 11,250 BOE per day to 12,250 BOE per day.

Actual 2Q 2019 production of 12,699 BOE per day is an all-time ESTE high and represents a hefty 13% sequential increase over actual 1Q 2019 volumes.

Full year capital expenditures are being increased from $190 million to $205 million, with operated Midland Basin capex increasing by $17 million, Midland Basin non-operated capex decreasing by $22 million and Eagle Ford Shale capex rising by $20 million. ESTE emphasizes that approximately $50 million of the 2019 capital budget will be applicable to production growth for 2020.

Lease operating expense and workover expense, on a $/BOE basis, moves higher, from a range of $5.25 to $5.75 to a range of $6.25 - $6.75.

We will review our estimates, rating and target price following the earnings conference call.
Dan Steffens
Energy Prospectus Group
dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Re: Earthstone Energy Q2 Results - Aug 7

Post by dan_s »

Management Comments

Robert J. Anderson, President of Earthstone Energy, Inc., commented, “We are pleased with our results so far this year and have geared up for our second half-weighted completions schedule that positions us to continue achieving profitable growth and peer leading margins. We are pleased to announce that we have entered into a Wellbore Development Agreement with an unaffiliated industry partner that will enhance our drilling economics and provide optionality in our future drilling plans as we meet our limited drilling obligations on an accelerated basis. We expect our revised capital program to result in bringing on 14 gross Midland Basin operated wells and 10 gross Eagle Ford operated wells from late in the third quarter through the end of the fourth quarter. Based largely on well performance year to date exceeding our expectations, we are moderately raising our production guidance for 2019. Further, based on both well performance year to date and on our revised capital program, we now expect a significantly higher exit rate of 14,000-15,000 barrels of oil equivalent per day. Between our updated exit rate expectations and the approximately $50 million of our estimated 2019 capital expenditures that will result in 2020 sales volumes, we will be very well positioned to begin 2020.”
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Robert has been on Frank Lodzinski's team for ~15 years. Earthstone has a rock solid team with a track record of success.
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: Earthstone Energy Q2 Results - Aug 7

Post by dan_s »

I have updated my forecast/valuation model for ESTE and posted it to the EPG website.

Primarily due to the nice production beat in Q2 and the increased production guidance, with a much higher production exit rate, my valuation increased by $1.00/share over what I have in the newsletter.

Earthstone's production may dip a bit in Q3 but it should come on strong late in Q4, setting up 2020 to be a very good year.

Earthstone's Q2 results would have been much better except for the terrible natural gas prices in the quarter and reduced NGL prices as well. Pushing more production into 2020 should now looks like a very good plan. Obviously, if Raymond James' forecast of $85/bbl WTI in Q1 ends up being accurate, this and all of the companies in our growth portfolios have significant upside from where they are trading today.

Earthstone's realized commodity prices including cash settlements on their hedges were:
Q1 2019: $59.80 for oil, $1.65 for natural gas, $21.65 for NGLs
Q2 2019: $61.92 for oil, $1.54 for natural gas, $14.90 for NGLs. < gas and ngl prices in West Texas should be much better in 2020 as more pipeline capacity is coming online in 2H 2019.

Assuming a realized oil price of $60/bbl in 2020, Earthstone should generate over $2.00 operating cash flow per share next year. That should be enough to cover their capex for a one rig drilling program in the Permian Basin.
Dan Steffens
Energy Prospectus Group
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