Earthstone Energy (ESTE) Update - March 12

[dan_s]

I listened to the replay of Earthstone's Q4 conference call and I have tweaked a few line items in my forecast/valuation model, but my valuation of $33/share has not changed. With the closing of the BigHorn Acquisition in April, Earthstone will become a much larger company with production of ~74,000 Boepd in May with a clear path to 80,000 Boepd by sometime in Q4 2022.

Based on my assumption that WTI will average $100/bbl in 2022, Earthstone's full-year average realized oil price (net of differentials and cash settlements on their hedges) should be ~$82/bbl. That price compares to their actual realized oil price of $52.18/bbl in 2021. Combining year-over-year production growth in 2022 of 167% with much higher oil, gas and NGL prices, Earthstone should generate $800 to $850 million of operating cash flow and approximately $400 million of free cash flow from operations.

ESTE closed at $12.59 on March 11. That price is just slightly more than 2X my operating cash flow per share forecast for 2022. So, this stock should be a double for us in six months.

TipRanks current price target is $20.80, but does not include any updated price targets since 2/22.

We will be publishing an updated profile on Earthstone next week.

My updated forecast model will be posted to the EPG website later today.