Eco-Stim Energy Solutions (ESES) is one of the companies on my Watch List because they have hosted several luncheons for up and I was very impressed by their management team.
Today, Credit Suisse initiated coverage on ESES with an Outperform rating. < This is impressive for a company of this size. Credit Suisse does a through analysis before they issue a report on any company.
ESES
Re: ESES
Here is a summary of the Credit Suisse report on ESES. If you'd like to see the full report, send me an e-mail (dmsteffens@comcast.net).
Taking US shale technology to Argentina. We are initiating coverage of ESES with an Outperform rating and a $5 price target. ESES is a start-up OFS company that aims to take US shale completion technology to Argentina to be applied to the development of the Vaca Muerta shale formation, which is considered among the best shales in the world.
Short equipment. There are ~400K HP of pressure pumping (PP) equipment in Argentina versus our estimate for a minimum of 1M HP required for Vaca Muerta development by 2024. ESES has one coiled tubing unit and one conventional PP crew working in Argentina with equipment en route to Argentina (July 2016 arrival) to put out a second conventional PP crew (which we model starting work in November 2016). ESES has two contracts for conventional PP work and one for coiled tubing work. We estimate ~$25M in capex is required to enter unconventional market, which we model in 3Q17. ESES's current conventional work is a stepping stone to the unconventional market, where the meaningful value creation resides.
Stemming the tide. Since Argentina's 2001 financial crisis, artificially low domestic hydrocarbon prices have incentivized consumption and disincentivized production, so demand outstripped supply and Argentina moved to a net importer position. This has hurt its foreign reserves despite having the second-largest technically recoverable shale gas resources in the world. A domestic political shift in late-2015 brought a free-market-oriented administration to power, which is expected to boost inflows of foreign capital into Argentina. We would expect the improved business environment to accelerate Vaca Muerta development.
Significant upside. Our $5 price target is a 50/50 blend of (1) 3.8x our 2018 EBITDA estimate of $33M, which implies a $3.7 valuation and (2) our $6.1 DCF-derived valuation (14.6% WACC, 2% terminal growth rate).
Taking US shale technology to Argentina. We are initiating coverage of ESES with an Outperform rating and a $5 price target. ESES is a start-up OFS company that aims to take US shale completion technology to Argentina to be applied to the development of the Vaca Muerta shale formation, which is considered among the best shales in the world.
Short equipment. There are ~400K HP of pressure pumping (PP) equipment in Argentina versus our estimate for a minimum of 1M HP required for Vaca Muerta development by 2024. ESES has one coiled tubing unit and one conventional PP crew working in Argentina with equipment en route to Argentina (July 2016 arrival) to put out a second conventional PP crew (which we model starting work in November 2016). ESES has two contracts for conventional PP work and one for coiled tubing work. We estimate ~$25M in capex is required to enter unconventional market, which we model in 3Q17. ESES's current conventional work is a stepping stone to the unconventional market, where the meaningful value creation resides.
Stemming the tide. Since Argentina's 2001 financial crisis, artificially low domestic hydrocarbon prices have incentivized consumption and disincentivized production, so demand outstripped supply and Argentina moved to a net importer position. This has hurt its foreign reserves despite having the second-largest technically recoverable shale gas resources in the world. A domestic political shift in late-2015 brought a free-market-oriented administration to power, which is expected to boost inflows of foreign capital into Argentina. We would expect the improved business environment to accelerate Vaca Muerta development.
Significant upside. Our $5 price target is a 50/50 blend of (1) 3.8x our 2018 EBITDA estimate of $33M, which implies a $3.7 valuation and (2) our $6.1 DCF-derived valuation (14.6% WACC, 2% terminal growth rate).
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group