Earthstone Energy (ESTE) Q3 Results - Nov 5

[dan_s]

John White:
Our valuation is based on a net asset value (NAV) analysis which produced $6.22 per share which we rounded lower to our $6.20 price target.

ESTE: Big Beat on Production, EBITDA, Positive Nudge to Guidance: Very Positive

ESTE reported 3Q 2020 production of 16,959 BOE per day, 25% higher than our estimate of 13,567 BOE per day and 28% higher than the consensus figure of 13,210 BOE per day. In turn, ESTE reported 3Q 2020 EBITDA of $36.4 million, topping the consensus figure of $29.2 million by 25% and our estimate of $28.3 million by 29%. With a bare bones capex of $1.4 million, FCF was an impressive $33.8 million.

Positive Adjustments to 2020 Guidance: Production guide was nudged higher, from a range of 13,000 BOE per day to 14,000 BOE per day to a higher range of 14,000 BOE per day to 14,500 BOE per day. LOE/BOE was lowered from a range of $5.50 to $6.00 to a range of $5.25 to $5.50. Capex guide moves slightly higher with the resumption of activity, from the previous range of $50 million to $60 million to $65 million to $70 million.

Resumption of Activity: ESTE has initiated completions on six drilled but uncompleted wells on the Ratliff project in Upton County (100% ESTE interest). These six wells have an average lateral length of approximately 8,400 feet with laterals in the Wolfcamp A, Wolfcamp B, and Upper and Lower Wolfcamp C. These four zones have all been successfully produced by ESTE or offset operators in close proximity to this project. These wells are expected to be online by year-end 2020, but ESTE does not anticipate any meaningful production contribution in 2020. Additionally, ESTE plans to begin completion activity of the remaining five drilled but uncompleted wells on the Hamman Upton project (75% ESTE interest) in January 2021.

We will further review these results and revise our projections accordingly.