Earthstone Energy (ESTE) Q1 Results - May 5

[dan_s]

Earthstone Energy is the smallest, but the fastest growing company in our Sweet 16. Their business strategy is "Buy producing assets with a lot of low risk development upside and then ramp up production with a steady drilling program". Their year-over-year production growth was 13.8% in 2020 (despite the pandemic), 62.2% growth in 2021 and they are on pace with the Chisholm and Big Horn acquisitions for more than 165% YOY production growth in 2022. My preliminary forecast for 2023 is 27% YOY growth with production of 84,000 Boepd. My pre-release valuation was $34.50 and I see nothing in this press release that will lower it. I will be updating my forecast/valuation model for ESTE this afternoon.
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THE WOODLANDS, Texas, May 4, 2022 /PRNewswire/ -- Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "we", "our" or "us"), today announced financial and operating results for the three months ended March 31, 2022.

First Quarter 2022 Highlights

Executed the Bighorn Acquisition PSA on January 30, 2022, which closed subsequent to quarter-end on April 14, 2022 < This acquisition doubles Earthstone's production to more than 70,000 Boepd.

In connection with the closing of the Bighorn Acquisition, we also closed a $550 million Notes Offering comprised of 8.0% senior unsecured notes on April 12, 2022

Executed a Securities Purchase Agreement on January 30, 2022 for $280 million of Preferred Stock in a private placement, which closed subsequent to quarter-end on April 14, 2022

Closed the Chisholm Acquisition on February 15,2022

Net loss attributable to Earthstone Energy, Inc. of $33.5 million, or $(0.53) per Diluted Share

Net loss of $51.9 million, or $(0.53) per Adjusted Diluted Share

Adjusted net income of $76.2 million, or $0.78 per Adjusted Diluted Share < This compares to my forecast of $44.9 million net income, $0.33 per share.

Adjusted EBITDAX of $123.1 million, up 44% compared to 4Q 2021 < Beat my forecast

Net cash provided by operating activities of $83.0 million < This includes the change in Working Capital

Free Cash Flow of $35.7 million, up 25% compared to 4Q 2021

KEY STAT: Earthstone's Adjusted Operating Cash Flow, before changes in Working Capital, was $104.0 million, which compares to my forecast of $104.4 million.

Average daily production of 35,509 Boepd, up 17% compared to 4Q 2021 < Compares to my forecast of 35,500 Boepd for Q1

Capital expenditures of $82.1 million, 16% below the midpoint of 1Q 2022 guidance < CapEx + FCF = Adjusted Operating Cash Flow.

Management Comments

Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "Our strong first quarter results reflect our ongoing transformation and the success of our consolidation strategy to acquire and effectively develop accretive assets. Adjusted EBITDAX for the quarter increased approximately 44% sequentially to $123 million, driven by a 15% increase in production and higher commodity prices, as well as our ability to control operating costs and general and administrative expense which has allowed us to maintain high cash margins. This accomplishment is with only having our Delaware Basin assets acquired in the Chisholm Acquisition for 45 days during the first quarter.

"With the significant accomplishments of closing two acquisitions approaching $1.5 billion in purchase price and issuing $550 million of senior unsecured notes this year now behind us, we are focused on executing efficiently with our much larger asset base," added Mr. Anderson. "The early results of the first wells completed on our newly acquired Delaware assets have been encouraging, and we are eager to continue to see results from our Delaware Basin development program. We are optimistic that we can continue to demonstrate the operational excellence for which we are known, successfully execute on our drilling program, and further increase free cash flow generation. Our robust and growing free cash flow positions us to repay significant amounts of debt for the remainder of the year and we expect to end the year comfortably under our targeted leverage of less than 1.0x debt to Adjusted EBITDAX under current commodity prices.

"Over the last year and a half, we have acquired quality assets that have significantly increased our production levels and cash flows while providing substantial, high quality drilling opportunities. We are pleased with the results of our acquisitions, and we look forward to reporting on the results of our larger asset base and drilling and completion program in the coming quarters. We will remain focused on integrating these new assets, executing our operational plan and generating record levels of free cash flow, which we believe will drive meaningful shareholder value," concluded Mr. Anderson.

[Fraser921]

Suggested topic for weekly podcast

Best buy on the dip names

Este is on my watch list

[Garyb1958]

Suggested topic for weekly podcast

Oil and Gas stocks taken out behind the barn and shot

[dan_s]

This is called "Market Risk". FEAR of inflation (which is good for commodity prices) and FEAR of the Fed are putting heavy pressure on the overall stock market.

Over 15 years ago I was "consulting" for a small hedge fund. When there is a selloff fueled by FEAR, fund managers must "throw the babies out with the bath water" to raise cash. The fundamentals for the Sweet 16 are outstanding. These stocks are nowhere near where they should be trading with WTI at $108 and HH gas at $8.75 at the time of this post.

The oil price increase despite a rising U.S. dollar is actually very encouraging.

[willvanam]

Dan can you comment on what % of production is hedged for 22 23 24

-trying to understand across all acquisitions what % is hedged

[dan_s]

Go to the Earthstone website and look at slide 17 of the presentation that you can view directly from their website.
Or
Just look at the bottom of my Earthstone forecast, which you can find under the Sweet 16 tab on the EPG website. I show each company's hedges on the bottom of my forecast models.

Nothing hedged beyond 2023.