Earthstone Energy (ESTE) Update - Jan 31

[dan_s]

This week I am extending all of the Sweet 16 forecast models through 2024, breaking out 2023 by quarter. I've finished AR, CPE, CRK, CPG and OVV.

Earthstone's updated forecast/valuation model will be posted to the EPG website this afternoon.

Earthstone Energy (ESTE) continues to be my Top Pick for 2023 because they increased production by more than 200% year-over-year in 2022 and I expect them to increase it by 35% to 40% year-over-year in 2023. The two most recent forecast models submitted to TipRanks (both by 5-Star energy sector analysts) are very close to what I am forecasting for total revenues.

Earthstone is an "Aggressive Growth" company that is now generating very strong operating cash flow per share.
> 2021 actual CFPS was $2.65
> My 2022 forecast is $7.07
> My 2023 forecast is $9.10, which compares to TipRanks' forecast of $8.08.
> My 2024 forecast is $10.95, which compares to TipRanks' forecast of $9.38

TipRanks: "RBC Capital analyst Scott Hanold maintained a Hold rating on Earthstone Energy (ESTE) on January 23 and set a price target of $21.00."

My current valuation of $34.00 is just 3.5 X annualized operating cash flow for 2022 to 2024.

I now expect the PV10 Net Asset Value of just Earthstone's proved reserves to be over $30/share as of 12/31/2022.

Earthstone has a lot of "running room" with ~800 net horizontal development drilling locations in the Permian Basin. In Q3 they completed 19 horizontal wells and 7 of them had 30 Day initial production rates of more than 1,500 Boepd. These wells will payout in less than six months at $80/bbl oil prices.

After closing the Bighorn Acquisition in April, they were running four operated drilling rigs and they recently announced adding a fifth rig in September and sticking with a five rig program through 2023. < There is a good chance that their production guidance for 2023 will exceed what I am using in my forecast (105,000 Boepd: 43% crude oil, 31% natural gas and 26% NGLs).

If you are not familiar with ESTE, I recommend that you read the profile we published on the company on 11/18/2022 and then spend time on the Company's website going through their most recent slide presentation. They are going to report strong Q4 results that should draw a lot more attention from the Wall Street Gang. You can find updated profiles on all of the Sweet 16 companies under the Sweet 16 tab on our website.