Earthstone Energy (ESTE) Q4 Results - March 12

[dan_s]

Earthstone's Q4 production was below my forecast, but higher realized oil and NGL prices thanks to their hedges and a rapidly improving NGL market more than offset the production volume miss.

ESTE is trading at $8.73 at the time of this post.

I lowered my production estimate to 20,000 Boepd for 2021, primarily because of the impact of February weather on their Midland Basin production.
Offsetting the lower production is higher oil and NGL prices. I am now assuming that WTI averages $65/bbl in 2H 2021 and in 2022. Since Earthstone has ~84% of the 2021 oil volumes hedged at $48.04, changes in the oil price don't have a significant impact on operating cash flow, which is the primary driver for all of my stock valuation. If oil production does exceed what I am modeling it will raise my valuation since the unhedged barrels will sell at market prices.

My valuation stays at $12.50 for now. The updated model has been posted to the EPG website.