Energy Prospectus

Earthstone Energy, Inc. (NYSE: ESTE) announced financial and operating results for the three and six months ended June 30, 2021.

Second Quarter 2021 Highlights

Announced the Tracker Acquisition which closed subsequent to quarter end on July 20, 2021 and Closed Eagle Ford working interest acquisitions in May and June 2021 for $48.0 million < These deals will increase Earthstone's production by ~8,000 Boepd from Q2 to Q3.

Net loss of $15.8 million and Adjusted net income of $20.3 million < Compares to my forecast of $12.3 million net income for Q2.

Adjusted EBITDAX of $53.7 million ($25.96 per Boe)

Net cash provided by operating activities of $55.1 million < Compares to my forecast of $44.4 million.

Free Cash Flow of $28.4 million

Average daily production of 22,716 Boepd < Compares to my Q2 forecast of 21,200 Boepd.

All-in cash costs of $11.65 per Boe

Operating Margin of $35.19 per Boe ($28.19 including realized hedge settlements)

Mr. Robert J. Anderson, President and CEO of Earthstone, commented, "We achieved strong second quarter results and continue building towards what we believe will be an exceptional year for Earthstone. Our team executed and delivered these strong results while successfully integrating the assets from our IRM Acquisition into our operations and actively pursuing additional acquisitions such as the recently closed Eagle Ford and Tracker acquisitions. Our growing cash flow combined with our solid balance sheet has positioned us to be able to execute an active acquisition strategy this year that is significantly increasing our scale while expanding our opportunities for greater efficiency and profitable growth. The series of accretive acquisitions that we have announced so far this year substantially increase our production and add about 120 high-graded drilling locations while only minimally impacting our leverage levels and total G&A costs. As we fully integrate the assets acquired in the Tracker Acquisition and execute on our two-rig drilling program, we expect that our results in 2022 will further demonstrate the meaningful benefits of our consolidation strategy."

My updated forecast/valuation model for ESTE will be posted to the EPG website this afternoon.

TipRanks: "In the last 3 months, 4 ranked analysts set 12-month price targets for ESTE. The average price target among the analysts is $15.50."

I have updated my forecast/valuation model for ESTE and posted it to the EPG home page. My valuation stays at $18.00, but my confidence in my 2022 forecast is much higher since they have closed the Tracker Acquisition and provided detailed guidance for 2H 2021. Earthstone is on-track to a production exit rate of 30,000 Boepd.

Despite closing three significant acquisitions this year, Earthstone's balance sheet is in very good shape. I like their production mix (~46% oil, 27% NGLs and 27% natural gas), which lowers their oil price risk.

Their two rig drilling program is fully funded by operating cash flow. FCF will be used to pay down debt.

I expect Earthstone to continue to make bolt on acquisitions.