ESTE was trading at $13.18 at the time of this post. My current valuation is $26/share.
Earthstone Provides Update on Operations, 2022 Guidance and Proved Reserves
02/16/2022
> Average Daily Production for the Fourth Quarter of 2021 Increased 104% Year Over Year < Beating my forecast by 1,244 Boepd
> Closed Chisholm Acquisition on February 15, 2022
THE WOODLANDS, Texas, Feb. 16, 2022 /PRNewswire/ -- Earthstone Energy, Inc. (NYSE: ESTE) ("Earthstone", the "Company", "our" or "we"), today provided an operations update, released 2022 guidance and announced its year-end 2021 estimated proved reserves.
> The Company has estimated its oil and gas sales volumes for the fourth quarter of 2021 to be approximately 2.78 MMBoe or an average of approximately 30,244 Boepd (43% oil). For the year ended December 31, 2021, the Company estimates its annual sales volumes grew 62% to approximately 9.06 MMBoe, or an average of approximately 24,809 Boepd (48% oil) compared to 15,276 Boepd (57% oil) reported for 2020.
> The Company also announced its year-end 2021 SEC total estimated proved reserves of approximately 147.6 MMBoe and $2.0 billion of PV-10 value.
> Incorporating the closing of the Chisholm Acquisition and the pending Bighorn Acquisition and utilizing NYMEX strip pricing, total reserves as of year-end were 330.2 MMBoe and $3.9 billion of PV-10.
Key highlights include:
> Average daily production for the fourth quarter of 2021 was 30,244 Boepd compared to 14,809 Boepd for the fourth quarter of 2020, representing an increase of 104% year over year
> $51.4 million and $128.2 million of capital expenditures in the fourth quarter of 2021 and full year 2021, respectively, falling below the low end of our 2021 capital guidance. < Compares to 2021 operating cash flows of ~$225 million.
> Full year 2022 production guidance of 64,250 to 67,750 Boepd (~41% oil) and $410-440 million of capital expenditures to support a four-rig operated program
> Completed the Chisholm Acquisition on February 15, 2022
Plan to continue operating two rigs in the Midland Basin and two rigs in the Northern Delaware Basin throughout 2022
Stand-alone year-end 2021 SEC total estimated proved PV-10 and reserves were $2.0 billion and 147.6 MMBoe (63% Proved Developed; 41% oil), respectively
Strong balance sheet and liquidity position with the increased $825 million borrowing base and elected commitments under our senior secured credit facility (the "Credit Facility") with further commitments to increase it to $1,325 million conditioned upon the closing of the previously announced Bighorn Acquisition
2022 Guidance
The Company's 2022 capital budget of $410-440 million assumes a four-rig program consisting of two rigs operating in the Midland Basin and two rigs operating in the Delaware Basin. This program is expected to result in the spudding of 60 gross / 47.6 net operated wells and bringing 58 gross / 48.3 net operated wells online and spudding 20 gross / 4.1 net non-operated wells and bringing 19 gross / 4.2 net non-operated wells online in 2022. The Company anticipates first quarter production to be 35-37 MBoepd (~44% oil). This estimate reflects ~45 days of production from the assets acquired in the Chisholm Acquisition. Furthermore, we expect production to double to 70-74 MBoepd (~41% oil) in the second quarter with an assumed ~75 days of contribution from the pending Bighorn Acquisition that is targeted to close in mid-April. We believe production in the second half of 2022 will be approximately 76-80 MBoepd (~41% oil) with the full impact of both acquisitions. < First quarter production guidance is slightly below my for forecast (38,000 Boepd) but second quarter production is much higher than my forecast (62,000 Boepd).
Based on our 2022 capital budget, operating plan, and existing service costs, along with current commodity prices and hedges, the Company expects to generate significant positive free cash flow in 2022. The Company's capital budget does not include any acquisition activities.
I am updating my forecast/valuation model for ESTE and it will be posted to the EPG website this afternoon.
Earthstone Energy (ESTE) Update - Feb 16
Earthstone Energy (ESTE) Update - Feb 16
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Earthstone Energy (ESTE) Update - Feb 16
Management Comments
Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "We believe that scale matters in our business. Through the acquisition of the accretive and well-located assets throughout 2021 and early 2022, we have enhanced our ability to optimize our operations, create value by driving down operating and overhead per unit expenses, and increase shareholder value. Our 2021 acquisitions and drilling activities allowed us to more than double production in the fourth quarter of 2021 versus the prior year, and we are poised to increase production by over 150% in 2022 with the additions of the Chisholm and Bighorn acquisitions. The six acquisitions we have closed or announced since the beginning of 2021 will expand our footprint by over 220,000 acres and increase our drilling inventory life to approximately 13 years at current commodity prices, while only adding minimal debt and keeping us positioned to achieve our targeted 1.0x Debt to EBITDAX ratio in 2022.
"With the closing of the Chisholm Acquisition, we have expanded our operations into the Delaware Basin with low cost, high margin assets that generate significant production from existing producing wells and we believe we can further drive value by implementing our proven operational strategies to lower lease operating expenses and optimize drilling and production. Continuing to operate two rigs on the acquired acreage will enable us to further unlock the potential in the Delaware Basin, and with the addition of over 414 drilling locations, we expect to generate substantial free cash flow.
"Additionally, we are excited about our plans to close on the Bighorn acquisition in mid-April and how that will transform our free cash flow profile in the second half of the year. Our ambitious 2022 operating plans, coupled with strong commodity prices, are expected to result in significant free cash flow. We remain focused on consolidation and adding accretive scale that we believe will result in continued improved cost structure and creation of shareholder value.
"Our near-term focus will be on successfully integrating the Chisholm assets and preparing to close upon and integrate the Bighorn assets. That said, we expect to continue our pursuit of accretive acquisitions in a prudent manner upon the successful integration of our most recently announced acquisitions."
Liquidity Update
As of December 31, 2021, we had $4 million in cash and $320 million of long-term debt outstanding under our Credit Facility with a borrowing base of $650 million. With the $330 million of undrawn borrowing base capacity and $4 million in cash, we had total liquidity of approximately $334 million. Subsequent to year-end, Earthstone closed on its previously announced Chisholm Acquisition. When adjusted to include the additional borrowings to fund the actual cash consideration due at the closing of the Chisholm Acquisition, we had an estimated $4 million in cash and $604 million of debt outstanding under our Credit Facility with a borrowing base of $825 million. With the $221 million of undrawn borrowing base capacity and $4 million in cash, we had total liquidity of approximately $225 million on a combined basis. Furthermore, lenders under the Credit Facility have committed to increasing the borrowing base and elected commitments by an incremental $500 million to $1,325 million conditioned upon the closing of the Bighorn Acquisition, which is anticipated to occur in mid-April.
Operational Update
We have been operating two drilling rigs in the Midland Basin since the third quarter of 2021. Currently, one rig is drilling in each of Midland and Irion Counties. The Midland County rig is drilling a four-well pad in our Hamman project area in which we hold a 70% working interest and will average 7,200-foot laterals. The Irion County rig is drilling a five-well pad in our Barnhart project area in which we hold 100% working interest and will average ~9,900-foot laterals. Including wells in progress at year-end, we spud 26 gross / 23.3 net operated wells in 2021.
In the fourth quarter of 2021, we completed four gross (3.5 net) wells on our West Hartgrove pad in Reagan County where we targeted the Upper and Lower Wolfcamp B zones with average laterals of approximately 5,700 feet. We also completed three gross (2.2 net) wells on our Hamman 30 pad in Upton County where we targeted the Wolfcamp A and Lower Wolfcamp B zones with average laterals of approximately 4,500 feet. Including these completions which were turned to sales during the fourth quarter, we brought online a total 19 gross / 15.4 net operated wells in 2021.
Additionally, we are completing five gross (5.0 net) wells on our Nickel Saloon pad in Upton County. These wells targeted the Wolfcamp A, Wolfcamp B and Wolfcamp C zones with an average lateral length of approximately 10,100 feet and we expect to have these wells online in late February 2022. There are also nine gross (8.7 net) wells that are drilled and waiting on completions in the Midland Basin.
The Company is focused on efficiently integrating the newly acquired Chisholm assets into our operations. This includes the two rigs currently operating on the Chisholm acreage in the northern Delaware Basin of New Mexico. Currently, these rigs are drilling a two-well pad in our Anaconda project area in which we hold a 42% working interest and will average 10,000-foot laterals targeting the 3rd Bone Spring, and a two-well pad in our Minis project area in which we hold a 96% working interest and will average 7,500-foot laterals targeting the 3rd Bone Spring. The first well on each pad has been drilled and is awaiting completion with the drilling of the second well on each pad expected to be finished drilling by the end of the month and with the wells expected to be online in the early fourth quarter.
There are currently two gross (1.4 net) drilled but uncompleted wells located on the Chisholm acreage and a total of five gross (3.2 net) wells turned online this year so far. These five gross wells brought online were all located in Lea County and targeted the 2nd and 3rd Bone Spring zones.
Robert J. Anderson, President and Chief Executive Officer of Earthstone, stated, "We believe that scale matters in our business. Through the acquisition of the accretive and well-located assets throughout 2021 and early 2022, we have enhanced our ability to optimize our operations, create value by driving down operating and overhead per unit expenses, and increase shareholder value. Our 2021 acquisitions and drilling activities allowed us to more than double production in the fourth quarter of 2021 versus the prior year, and we are poised to increase production by over 150% in 2022 with the additions of the Chisholm and Bighorn acquisitions. The six acquisitions we have closed or announced since the beginning of 2021 will expand our footprint by over 220,000 acres and increase our drilling inventory life to approximately 13 years at current commodity prices, while only adding minimal debt and keeping us positioned to achieve our targeted 1.0x Debt to EBITDAX ratio in 2022.
"With the closing of the Chisholm Acquisition, we have expanded our operations into the Delaware Basin with low cost, high margin assets that generate significant production from existing producing wells and we believe we can further drive value by implementing our proven operational strategies to lower lease operating expenses and optimize drilling and production. Continuing to operate two rigs on the acquired acreage will enable us to further unlock the potential in the Delaware Basin, and with the addition of over 414 drilling locations, we expect to generate substantial free cash flow.
"Additionally, we are excited about our plans to close on the Bighorn acquisition in mid-April and how that will transform our free cash flow profile in the second half of the year. Our ambitious 2022 operating plans, coupled with strong commodity prices, are expected to result in significant free cash flow. We remain focused on consolidation and adding accretive scale that we believe will result in continued improved cost structure and creation of shareholder value.
"Our near-term focus will be on successfully integrating the Chisholm assets and preparing to close upon and integrate the Bighorn assets. That said, we expect to continue our pursuit of accretive acquisitions in a prudent manner upon the successful integration of our most recently announced acquisitions."
Liquidity Update
As of December 31, 2021, we had $4 million in cash and $320 million of long-term debt outstanding under our Credit Facility with a borrowing base of $650 million. With the $330 million of undrawn borrowing base capacity and $4 million in cash, we had total liquidity of approximately $334 million. Subsequent to year-end, Earthstone closed on its previously announced Chisholm Acquisition. When adjusted to include the additional borrowings to fund the actual cash consideration due at the closing of the Chisholm Acquisition, we had an estimated $4 million in cash and $604 million of debt outstanding under our Credit Facility with a borrowing base of $825 million. With the $221 million of undrawn borrowing base capacity and $4 million in cash, we had total liquidity of approximately $225 million on a combined basis. Furthermore, lenders under the Credit Facility have committed to increasing the borrowing base and elected commitments by an incremental $500 million to $1,325 million conditioned upon the closing of the Bighorn Acquisition, which is anticipated to occur in mid-April.
Operational Update
We have been operating two drilling rigs in the Midland Basin since the third quarter of 2021. Currently, one rig is drilling in each of Midland and Irion Counties. The Midland County rig is drilling a four-well pad in our Hamman project area in which we hold a 70% working interest and will average 7,200-foot laterals. The Irion County rig is drilling a five-well pad in our Barnhart project area in which we hold 100% working interest and will average ~9,900-foot laterals. Including wells in progress at year-end, we spud 26 gross / 23.3 net operated wells in 2021.
In the fourth quarter of 2021, we completed four gross (3.5 net) wells on our West Hartgrove pad in Reagan County where we targeted the Upper and Lower Wolfcamp B zones with average laterals of approximately 5,700 feet. We also completed three gross (2.2 net) wells on our Hamman 30 pad in Upton County where we targeted the Wolfcamp A and Lower Wolfcamp B zones with average laterals of approximately 4,500 feet. Including these completions which were turned to sales during the fourth quarter, we brought online a total 19 gross / 15.4 net operated wells in 2021.
Additionally, we are completing five gross (5.0 net) wells on our Nickel Saloon pad in Upton County. These wells targeted the Wolfcamp A, Wolfcamp B and Wolfcamp C zones with an average lateral length of approximately 10,100 feet and we expect to have these wells online in late February 2022. There are also nine gross (8.7 net) wells that are drilled and waiting on completions in the Midland Basin.
The Company is focused on efficiently integrating the newly acquired Chisholm assets into our operations. This includes the two rigs currently operating on the Chisholm acreage in the northern Delaware Basin of New Mexico. Currently, these rigs are drilling a two-well pad in our Anaconda project area in which we hold a 42% working interest and will average 10,000-foot laterals targeting the 3rd Bone Spring, and a two-well pad in our Minis project area in which we hold a 96% working interest and will average 7,500-foot laterals targeting the 3rd Bone Spring. The first well on each pad has been drilled and is awaiting completion with the drilling of the second well on each pad expected to be finished drilling by the end of the month and with the wells expected to be online in the early fourth quarter.
There are currently two gross (1.4 net) drilled but uncompleted wells located on the Chisholm acreage and a total of five gross (3.2 net) wells turned online this year so far. These five gross wells brought online were all located in Lea County and targeted the 2nd and 3rd Bone Spring zones.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Earthstone Energy (ESTE) Update - Feb 16
TipRanks shows that four analysts have updated their price target since January 31st, so they should include the impact of the Bighorn Acquistion, which is now expected to close in April. The four price targets are $18, $19, $25 and $33.
The most recent is from Alliance Global Partners analyst Jeffrey Campbell on 2/11/22 raised the firm's price target on Earthstone Energy to $33 from $28 and keeps a Buy rating on the shares based on a revised 2023 EBITDA estimate of $1.09B after the company recently announced the acquisition of privately held Bighorn Permian Resources. The Bighorn acquisition accelerates Earthstone's progression toward capital returns to shareholders, argues Campbell.
My updated current valuation is $27.50 per share.
The most recent is from Alliance Global Partners analyst Jeffrey Campbell on 2/11/22 raised the firm's price target on Earthstone Energy to $33 from $28 and keeps a Buy rating on the shares based on a revised 2023 EBITDA estimate of $1.09B after the company recently announced the acquisition of privately held Bighorn Permian Resources. The Bighorn acquisition accelerates Earthstone's progression toward capital returns to shareholders, argues Campbell.
My updated current valuation is $27.50 per share.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group