Este keeps spending money like a drunken sailor on a weekend pass:
https://seekingalpha.com/news/3980112-northern-oil-gas-earthstone-energy-to-buy-delaware-basin-assets-for-15b-total#comments
How was the luncheon?
ESTE & NG with a purchase
Re: ESTE & NOG with a purchase
We had an overflow crowd at the luncheon and Robert Anderson made a very good presentation. He is very bullish on what they already have in the Delaware Basin and the acquisition of Novo Oil & Gas will add even more upside potential. Eddy County, NM is home to some of the best wells in the entire Permian Basin. One bullish point that came up during yesterday's Q&A is that with their two previous acquisitions they've added ~60 high quality employees.
Novo Asset Highlights (Net to Earthstone)
Recent production of approximately 38,000 Boepd (37% oil, 66% liquids) from 114 wells
$912 million Proved Developed (“PD”) PV-10 and PD reserves of approximately 73.9 million barrels of oil equivalent (“MMBoe”)
21 gross operated wells waiting on completion
Estimated $360-380 million of next twelve months (“NTM”) Adjusted EBITDAX
Approximately 11,300 net acres (99% operated, 57% working interest, 86% held by production) in the core of the Delaware Basin in Eddy County, New Mexico, and Culberson County, Texas
High-return drilling inventory with ~200 gross operated locations and with average breakeven below $40 barrel of oil (“Bbl”)(4)
Novo Acquisition Highlights
Attractive Financial Accretion: Purchase price implies 2.7x NTM Adjusted EBITDAX and approximately a 30% NTM unlevered Free Cash Flow yield. The transaction is accretive to Earthstone across key financial metrics, providing an estimated increase to 2024E Adjusted EBITDAX of more than 20% and an estimated increase to 2024E Free Cash Flow of more than 60%.
Enhanced Scale & Synergy: Highly complementary acreage and regional expertise supports greater capital and operational efficiency, plus increased and sustainable Free Cash Flow generation.
Adds High-Quality Inventory: Strengthens deep inventory with ~200 high-return locations, with average breakeven below $40/Bbl and de-risked gross locations across multiple benches that will immediately receive an allocation of capital. Extends inventory life to approximately 13 years.
Creates a Stronger Earthstone: Transaction significantly strengthens operational and financial performance, better positions Earthstone as a Permian consolidator, and accelerates potential for meaningful shareholder returns.
Earthstone intends to maintain its five operated drilling rigs post-closing. Given that Novo’s inventory immediately competes for capital, Earthstone intends to move one of its two drilling rigs currently operating in the Midland Basin to the Delaware Basin to focus on the Novo assets. The net result will be Earthstone having four rigs operating in the Delaware Basin and one in the Midland Basin post-closing. The Novo Acquisition and revised development plan continue Earthstone’s evolution over the past several years, with its drilling inventory and development program now heavily weighted towards the highly economic northern Delaware Basin assets.
Recent Non-Core Asset Sales
Earthstone sold certain non-core assets in the Midland Basin for cash proceeds of approximately $56 million on May 31, 2023. The divested assets included production of approximately 530 Boepd (~45% oil) and acreage comprising 32 short lateral drilling locations. Earthstone will continue to consider other non-core asset sales as appropriate in the future.
--------------------------
I will be updating my forecast/valuation model for Earthstone today and it will be posted to the EPG website this afternoon.
Novo Asset Highlights (Net to Earthstone)
Recent production of approximately 38,000 Boepd (37% oil, 66% liquids) from 114 wells
$912 million Proved Developed (“PD”) PV-10 and PD reserves of approximately 73.9 million barrels of oil equivalent (“MMBoe”)
21 gross operated wells waiting on completion
Estimated $360-380 million of next twelve months (“NTM”) Adjusted EBITDAX
Approximately 11,300 net acres (99% operated, 57% working interest, 86% held by production) in the core of the Delaware Basin in Eddy County, New Mexico, and Culberson County, Texas
High-return drilling inventory with ~200 gross operated locations and with average breakeven below $40 barrel of oil (“Bbl”)(4)
Novo Acquisition Highlights
Attractive Financial Accretion: Purchase price implies 2.7x NTM Adjusted EBITDAX and approximately a 30% NTM unlevered Free Cash Flow yield. The transaction is accretive to Earthstone across key financial metrics, providing an estimated increase to 2024E Adjusted EBITDAX of more than 20% and an estimated increase to 2024E Free Cash Flow of more than 60%.
Enhanced Scale & Synergy: Highly complementary acreage and regional expertise supports greater capital and operational efficiency, plus increased and sustainable Free Cash Flow generation.
Adds High-Quality Inventory: Strengthens deep inventory with ~200 high-return locations, with average breakeven below $40/Bbl and de-risked gross locations across multiple benches that will immediately receive an allocation of capital. Extends inventory life to approximately 13 years.
Creates a Stronger Earthstone: Transaction significantly strengthens operational and financial performance, better positions Earthstone as a Permian consolidator, and accelerates potential for meaningful shareholder returns.
Earthstone intends to maintain its five operated drilling rigs post-closing. Given that Novo’s inventory immediately competes for capital, Earthstone intends to move one of its two drilling rigs currently operating in the Midland Basin to the Delaware Basin to focus on the Novo assets. The net result will be Earthstone having four rigs operating in the Delaware Basin and one in the Midland Basin post-closing. The Novo Acquisition and revised development plan continue Earthstone’s evolution over the past several years, with its drilling inventory and development program now heavily weighted towards the highly economic northern Delaware Basin assets.
Recent Non-Core Asset Sales
Earthstone sold certain non-core assets in the Midland Basin for cash proceeds of approximately $56 million on May 31, 2023. The divested assets included production of approximately 530 Boepd (~45% oil) and acreage comprising 32 short lateral drilling locations. Earthstone will continue to consider other non-core asset sales as appropriate in the future.
--------------------------
I will be updating my forecast/valuation model for Earthstone today and it will be posted to the EPG website this afternoon.
Last edited by dan_s on Thu Jun 15, 2023 10:42 am, edited 1 time in total.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ESTE & NOG with a purchase
It is going to take the Wall Street Gang a few days to updated their forecasts and price targets for ESTE.
Per TipRanks today: "In the last 3 months, 3 ranked analysts set 12-month price targets for ESTE. The average price target among the analysts is $22.67. The 3 price targets range from $18 to $30." < All three are dated in May.
My current valuation for ESTE increases by $1.50/share to $33.50. My valuation is 4X annualized operating cash flow.
At the time of this post, ESTE was trading at $13.66.
Per TipRanks today: "In the last 3 months, 3 ranked analysts set 12-month price targets for ESTE. The average price target among the analysts is $22.67. The 3 price targets range from $18 to $30." < All three are dated in May.
My current valuation for ESTE increases by $1.50/share to $33.50. My valuation is 4X annualized operating cash flow.
At the time of this post, ESTE was trading at $13.66.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ESTE & NG with a purchase
I was a bit surprised when Robert alluded to the Midland Basin assets being basically Tier 2 and unlikely would not be drilled at prices below $60. Also I believe it was the Big Horn acquisition that he stated that 30 DUC's had been included that won't be completed. A bit concerned that in their quest for growth they may be adding some sub-par acreage or producing wells that were not optimally drilled and/or operated. Do those comments cause you concern?
Re: ESTE & NG with a purchase
No.
The rock in the Midland Basin is just not as good as the outstanding rock in SE New Mexico. Well level economics in the Midland Basin are still good at today's oil prices but well level economics are GREAT at today's oil prices in the Delaware Basin.
ESTE is currently trading at less than 2X operating cash flow. The Company is free cash flow positive and it has a lot of high-quality "running room".
The rock in the Midland Basin is just not as good as the outstanding rock in SE New Mexico. Well level economics in the Midland Basin are still good at today's oil prices but well level economics are GREAT at today's oil prices in the Delaware Basin.
ESTE is currently trading at less than 2X operating cash flow. The Company is free cash flow positive and it has a lot of high-quality "running room".
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ESTE & NG with a purchase
Every time they spend 1 billion the target price goes up.
What happen to spending discipline?
What happen to spending discipline?
Re: ESTE & NG with a purchase
Earthstone is an "Aggressive Growth" company. The acquisition of Novo should be accretive to free cash flow per share and it adds a lot of running room. That is why the stock valuation goes up.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ESTE & NG with a purchase
Copied
Earthstone Energy Announces $1.0 Billion Delaware Basin Acquisition
It is not just "really good". It is smart and brilliant.
Purchasing real production and reserves at such bottom pricing per flowing in the market of very high D&C costs is a steal. Private sellers likely needed cash ASAP.
Q1 FCF was ~$65mm. ESTE forecast 60% higher after acquisition in 2024, assume $100mm per quarter.
I would assume same in H2-23 as the effective day is May1...plus 2 months in the current quarter.
ESTE will pay $1B
ESTE has sold non-core for $56mm on May 31, 530 boed or $105K per flowing...a bit higher oil ratio.
Will pay by cash on hand and draw revolver.
FCF in Q2 should rise to ~$90mm.
So ESTE NET debt rise would be $1b - $90mm - $56mm = ~$855mm.
By the end of 2024 net debt should plunge by ~$600mm (6 quarters) remaining just $255mm plus $450mm on March 31-2023.
Total debt by 2024 YE - ~$700mm only...plus ~$60mm cost of extra financing unless it is already included in 60% FCF rise.
at 30-35% production rise...already reduced from current $143K boed per guidance.
So much better than by drill bit....keep fingers crossed for oil prices...50% addition was hedged.
Same share count.
But if oil prices rise....I think they will.....leverage...
Re: Earthstone Energy Announces $1.0 Billion Delaware Basin Acquisition-revised
The purchase price is unbelievably cheap with no doubts, it was a steal as I mentioned in my first look this morning. Glad that you came up to same conclusion from PD=PDP+PUD basis. Undeveloped land was basically for free...in Delaware.
But what made me much more excited - purchase by cash not by stock taking advantage of available large credit line, non-core asset sale and current FCF - without a single stock issued. This is huge addition per share. This rejects all talks and speculations about questioned Tier 1 or 2.
Sure there're certain risks if oil prices decline down the road while debts became higher, but....this is what differentiates a CEO with understanding of the oil price market and price trajectory from a CEO who doesn't.
This CEO has made a brilliant decision specifically to ESTE - instead of drill-drill-drill that would incur high capex due to very high drilling costs in Permian - he purchased nice asset in Delaware with high production and high reserves amazingly cheap, likely 3X cheaper than the cost of today's drilling...and without issuing a single stock.
But he's also proposing flat capex even after acquisition with no change to allow total combined production to decline a little while maximizing FCF to pay down incurred acquisition debts as soon as possible.
This stock is for investors, not for traders. In 18 short months at current oil prices debt overhead will disappear, but if oil prices rise to $80-90, much faster.
If oil prices rise in H2-23 to such level, ESTE will likely increase capex up to maintenance level.
$1.9B market cap for 143K boed current after acquisition production company, even with slight decline the next year guidance is about 10% lower with about $1.35b after acquisition debts...that will be cut in half by the 2024 YE.
I have accumulated very large position during recent month selloff and is pleased with this deal. JMHO.
This is not for low debt folks, this is not vertically integrated company, this is for those who are looking for maximum rewards by agreeing taking extra risks.
NTB - it is amazing we both independently came up to best values, but from different facets - OBE, ATH, ESTE
Earthstone Energy Announces $1.0 Billion Delaware Basin Acquisition
It is not just "really good". It is smart and brilliant.
Purchasing real production and reserves at such bottom pricing per flowing in the market of very high D&C costs is a steal. Private sellers likely needed cash ASAP.
Q1 FCF was ~$65mm. ESTE forecast 60% higher after acquisition in 2024, assume $100mm per quarter.
I would assume same in H2-23 as the effective day is May1...plus 2 months in the current quarter.
ESTE will pay $1B
ESTE has sold non-core for $56mm on May 31, 530 boed or $105K per flowing...a bit higher oil ratio.
Will pay by cash on hand and draw revolver.
FCF in Q2 should rise to ~$90mm.
So ESTE NET debt rise would be $1b - $90mm - $56mm = ~$855mm.
By the end of 2024 net debt should plunge by ~$600mm (6 quarters) remaining just $255mm plus $450mm on March 31-2023.
Total debt by 2024 YE - ~$700mm only...plus ~$60mm cost of extra financing unless it is already included in 60% FCF rise.
at 30-35% production rise...already reduced from current $143K boed per guidance.
So much better than by drill bit....keep fingers crossed for oil prices...50% addition was hedged.
Same share count.
But if oil prices rise....I think they will.....leverage...
Re: Earthstone Energy Announces $1.0 Billion Delaware Basin Acquisition-revised
The purchase price is unbelievably cheap with no doubts, it was a steal as I mentioned in my first look this morning. Glad that you came up to same conclusion from PD=PDP+PUD basis. Undeveloped land was basically for free...in Delaware.
But what made me much more excited - purchase by cash not by stock taking advantage of available large credit line, non-core asset sale and current FCF - without a single stock issued. This is huge addition per share. This rejects all talks and speculations about questioned Tier 1 or 2.
Sure there're certain risks if oil prices decline down the road while debts became higher, but....this is what differentiates a CEO with understanding of the oil price market and price trajectory from a CEO who doesn't.
This CEO has made a brilliant decision specifically to ESTE - instead of drill-drill-drill that would incur high capex due to very high drilling costs in Permian - he purchased nice asset in Delaware with high production and high reserves amazingly cheap, likely 3X cheaper than the cost of today's drilling...and without issuing a single stock.
But he's also proposing flat capex even after acquisition with no change to allow total combined production to decline a little while maximizing FCF to pay down incurred acquisition debts as soon as possible.
This stock is for investors, not for traders. In 18 short months at current oil prices debt overhead will disappear, but if oil prices rise to $80-90, much faster.
If oil prices rise in H2-23 to such level, ESTE will likely increase capex up to maintenance level.
$1.9B market cap for 143K boed current after acquisition production company, even with slight decline the next year guidance is about 10% lower with about $1.35b after acquisition debts...that will be cut in half by the 2024 YE.
I have accumulated very large position during recent month selloff and is pleased with this deal. JMHO.
This is not for low debt folks, this is not vertically integrated company, this is for those who are looking for maximum rewards by agreeing taking extra risks.
NTB - it is amazing we both independently came up to best values, but from different facets - OBE, ATH, ESTE
Re: ESTE & NG with a purchase
I love the ESTE + NOG partnership to make this deal work. They both have outstanding technical teams that know how to evaluate acquisitions. People make the difference in this business and they both have VERY GOOD people.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ESTE & NG with a purchase
In the last couple of years they have added a bunch of other people’s properties. So if it is all good rock, been managed properly, oil prices hold up, it could turn out very nicely.