Earthstone Energy (ESTE) Update - Jan 10

[dan_s]

On January 7th Earthstone Energy, Inc. (NYSE: ESTE) announced that it has completed the previously announced acquisition of Independence Resources Management, LLC ("IRM"). The aggregate purchase price for the acquisition was approximately $182.0 million, consisting of $131.2 million in cash consideration and approximately 12.7 million shares of Earthstone's Class A common stock valued at $50.8 million based on a closing share price of $3.99 on December 16, 2020.

Management Commentary

Mr. Robert J. Anderson, President and CEO of Earthstone, commented, "We are pleased to be able to begin 2021 with the completion of this significant acquisition and would like to thank the team at IRM for working with us to close this transaction just three weeks after announcement. The added scale of this acquisition enhances our ability to deliver top tier operational and financial results with a heavy focus on generating low-cost, high margin production. We remain committed to financial discipline while continuing to seek further increases to our scale with high-quality accretive acquisitions."

The acquired properties are producing approximately 8,500 Boepd. < This pushes Earthstone's total production up to approximately 22,500 Boepd. For modeling purposes, I am expecting Earthstone to add another 3,500 Boepd during 2H 2021 as I expect them to be running two operated drilling rigs this summer.

Director Appointment

In connection with closing, the Earthstone Board of Directors has expanded to nine members with the appointment of Mr. David S. Habachy. Mr. Habachy has been a Managing Director on the Energy team of Warburg Pincus, LLC since 2017.

About Earthstone Energy, Inc.

Earthstone Energy, Inc. is a growth-oriented, independent energy company engaged in the development and operation of oil and natural gas properties. Its primary assets are located in the Midland Basin of west Texas and the Eagle Ford Trend of south Texas. Earthstone is listed on the New York Stock Exchange under the symbol "ESTE." For more information, visit the Company's website at www.earthstoneenergy.com.

[dan_s]

ESTE closed at $5.79 on Friday, January 8.
Since the company announced the IRM acquisition on 12-18-2020, five energy sector analysts have published fresh reports and price targets that range from $6 to $9.
First Call's price target has increased $1 since 12/18 and is now $7.69.

All of the price targets are based on lower oil prices than I am using for 2H 2021 and 2022. See my last podcast for the oil & gas prices that I am using.
Earthstone has quite a bit of their oil & gas hedged, which lowers their commodity price risk. NGL prices are also improving and none of their NGLs are hedged.
West Texas price differentials are improving now that the region has adequate pipeline takeaway capacity.

I am raising my valuation of ESTE to $10.00.

You can find our recent profile on the company under the Sweet 16 tab on our website.