Earthstone Energy (ESTE) Update - July 20

[dan_s]

Earthstone Completes Tracker Acquisition and Updates Guidance & Operations
07/20/2021
Read full press release here: https://investor.earthstoneenergy.com/p ... fault.aspx

Provides Estimated Mid-Year Proved Reserves

THE WOODLANDS, Texas, July 20, 2021 /PRNewswire/ -- Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "our" or "we"), today announced that it has completed the previously announced acquisition of privately held operated assets located in the Midland Basin from Tracker Resource Development III, LLC and an affiliate ("Tracker") and from affiliates of Sequel Energy Group LLC, which hold well-bore interests in certain of the producing wells operated by Tracker (collectively, the "Tracker Acquisition"). The Company also updated its 2021 guidance, provided an operational update, and provided an estimate of mid-year 2021 proved reserves.

The Company estimates its oil and gas sales volumes for the second quarter of 2021 to be approximately 2.07 MMBoe or an average of 22,716 Boe/d (52% oil, 76% liquids). < This compares to my Q2 forecast of 20,800 Boepd (57.7% crude oil and 20.4% NGLs).

The Company also has provided its estimate of mid-year 2021 proved reserves based on SEC pricing as of June 30, 2021, on a standalone basis as well as based on NYMEX strip pricing as of June 30, 2021 and adjusted for closing of the Tracker Acquisition. Adjusted for the closing of the Tracker Acquisition and including only proved developed reserves from the Tracker Acquisition, the Company estimates total proved reserves were 133.6 MMBoe, with a corresponding PV-10 value1 of $1,677 million.

Key highlights include:

Achieved record estimated average daily sales volumes in the second quarter of 2021 of 22,716 Boe/d (52% oil), an increase of 12% over first quarter 2021 volumes

Closed the Tracker Acquisition on July 20, 2021, the third significant acquisition completed in 2021

Maintained a strong balance sheet and liquidity position with $249.5 million of undrawn capacity under our $550 million senior secured revolving credit facility and a cash balance of $0.5 million as of June 30, 2021, as adjusted for the closing of the Tracker Acquisition on July 20, 2021

On track to achieve leverage below 1.25x at year-end 20212

$1,677 million PV-10 value on Company estimated Mid-Year 2021 total proved reserves of 133.6 MMBoe, based on NYMEX strip pricing, adjusted to include only the proved developed reserves of 20.2 MMBoe from the Tracker Acquisition

$1,089 million PV-10 value of proved developed reserves of 83.6 MMBoe included in total proved reserves estimates above

Full Year 2021 production guidance increased 19% at the mid-point to 23,500-24,250 Boe/d (50%-51% oil) compared to the previous guidance

Average daily sales volumes in the second half of 2021 are expected to be between 25,500 and 27,000 Boe/d

Estimated accrued capital expenditures of $22.8 million and $32.6 million for the second quarter of 2021 and first-half of 2021, respectively, excluding acquisitions

Plan to add a second rig to the 2021 drilling program in mid-third quarter, with a revised Full Year 2021 capital budget of $130-$140 million,
Expect to spud 9 incremental gross operated wells and turn to sales 4 incremental gross operated wells compared to the prior capital budget

[dan_s]

Mid-Year 2021 Company Estimated Proved Reserves, combined with only the estimated proved developed reserves of 20.2 MMBoe from the Tracker Acquisition:

$1,667 million PV-10 value of Proved Reserves of 133.6 MMBoe (48% oil, 27% natural gas liquids, and 25% natural gas) < The debt adjusted PV10 value of ESTE using P1 reserves is approximately $15/share prepared utilizing NYMEX strip benchmark prices and basis differentials as of June 30, 2021.

[dan_s]

July 8, 2021: Roth Capital analyst John White raised the firm's price target on Earthstone Energy to $16.50 from $12.50 and keeps a Buy rating on the shares. The analyst cites crude oil and natural gas price estimates and production from previously announced acquisitions. White also increased his production estimates for the second half of 2021 as he anticipates Earthstone will began running a second rig in late Q3 2021.

My valuation of ESTE stays at $18.00, which is a higher multiple of 2021 operating cash flow per share than the Sweet 16 average. I believe the higher valuation is justified by the Company's strong production growth (~55% YOY in 2021 and ~30% YOY in 2022) and drilling program that will be fully funded by operating cash flow. Based on Earthstone's guidance they will generate over $50 million of free cash flow from operations this year.

Liquidity Update from Earthstone
As of June 30, 2021, we had $0.5 million in cash and $241.4 million of long-term debt outstanding under our credit facility with a borrowing base of $475 million. With the $233.6 million of undrawn borrowing base capacity and $0.5 million in cash, we had total liquidity of approximately $234.1 million. Adjusted for the closing of the Tracker Acquisition on July 20, 2021, we had an estimated $0.5 million in cash and $301.0 million of long-term debt outstanding under our credit facility with a borrowing base of $550 million. With the $249.0 million of undrawn borrowing base capacity and $0.5 million in cash, we had total liquidity of approximately $249.5 million on a combined basis.
Compare the debt level to the PV10 value of just their proven reserves (P1).