Earthstone Energy (ESTE) Valuation Update - Aug 3

[dan_s]

At the time of this post ESTE was trading at $16.04.

I have updated my forecast/valuation model for Q2 actual results that were very close to my forecast and for the company's updated guidance, which they have been exceeding quarter-after-quarter. My valuation is based on the midpoint of their production guidance. They are running 5 operated rigs, so their 2025 exit rate should be ~135,000 Boepd. My 2024 forecast is based on 140,000 Boepd (41% crude oil), which is probably too conservative.

My valuation has been lowered by $1 to $32 just because I am now using lower natural gas and NGL prices. ESTE remains one of my Top Picks because this management team is Top Shelf. Earthstone now has a lot of very strong running room in the Delaware Basin.

They will be running 4 operated rigs in the Delaware Basin that is more oil-prone than the Midland Basin. My only minor negative for ESTE is that it is too "gassy", so focusing on the Delaware Basin should help.

Earthstone is now generating a lot of free cash flow and their balance sheet is in good shape. Closing of the Novo Acquisition on August 15th should draw more attention to thid very aggressive growth company.

TipRanks: "In the last 3 months, 6 ranked analysts set 12-month price targets for ESTE. The average price target among the analysts is $23.00." < None of the price targets have been updated since the Company announced strong Q2 results.

[aja57]

Trading volume is quite robust today for both ESTE and NOG. looks like the deal has marinated with Wall Street.

[knusser58]

Hi Dan,
what is your capex estimate for ESTE for 2024?
Regards,
Klaus

[dan_s]

If they run five rigs all year their D&C Capex should be $750 to $850 million in 2024. Delaware Basin wells might be more expensive than the Midland Basin wells, but they should also be a lot more productive.

[knusser58]

Dan,
thank, that helps.
Regards,
Klaus