Earthstone Energy (ESTE)

[dan_s]

Frank Lodzinski, President & CEO of Oak Valley Resources LLC made a very good presentation at our luncheon today in Houston. The slides he spoke from will be up on our website this afternoon.

Oak Valley is a private company that will be merging into ESTE during the 4th quarter. The merger should close in November. Post-closing it will have over 3,000 boepd of production (70% oil). They are primarily focused on the Eagle Ford in Gonzales and Fayette counties (a good oil prone area). They have 49,150 gross acres (14,745 net acres) in the two counties. Two operated rigs running today with plans to ramp up to four rigs in 2015. Sanchez (SN) and Penn Virginia (PVA) are drilling in direct offset locations and getting good results. In the northern half of their acreage block they will be drilling Austin Chalk wells to HBP the acreage.

They also have some JV acreage operated by BHP in La Salle County. BHP is drilling 9 wells on the JV acreage and Oak Valley has a 15% working interest. This area produces primarily high btu gas with lots of NGLs.

They have 10,919 net acres in North Dakota and Montana with Bakken / Three Forks. Seven net wells producing today. Operators are Statoil. Oasis, Newfield, CLR, SM, XTO, Burlington and Marathon (all good operators).

My Take:
> There is very little risk of the merger not closing
> The company will have a strong balance sheet and over $175 million cash at closing
> It should be earnings positive from Day 1.
> The closing will be a catalysts that takes the ESTE share price higher
> Post-Closing they have a solid plan to double production by the end of 2015 (over 6,000 boepd)
> ESTE has a market cap today of $51 million
> Compare to Callon Petroleum (CPE)'s market cap of $383 million. CPE produces about 6,000 boepd today.
> EnCap is involved, so they will get lots of analysts to cover it.
> This one is definitely interesting

Most of you will remembers GeoResources. It was a triple for most of us.

[ChuckGeb]

Great presentation. Dan, when comparing market caps wouldn't you need to divide ESTE's current market cap by 16% , the percentage of stock to be owned by current shareholders after the merger?

[wilmawatts]

Frank is the Man!

[dan_s]

Chuck: You are correct. You need to consider the new shares that are going to be issued to the Oak Valley shareholders.