Earthstone Energy (ESTE) Valuation Update - Mar 9

dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by dan_s »

I have updated my forecast/valuation model for ESTE and posted it to the EPG website.

My valuation increases by $4 to $38/share.
> I added Q4 actual results and updated each quarter in 2023 based on the detailed guidance the Company provided.
> This is an AGGRESSIVE GROWTH COMPANY and most of the growth will continue to come from accretive acquisitions in the Permian Basin.
> Q4 production beat my forecast by 4,766 Boepd.
> I expect them to achieve the high end of this year's guidance, not including additional acquisitions.
> Operating cash flow should increase from $7.39/share in 2022 to $8.20 in 2023. A valuation of AT LEAST 4X CFPS SHARE is a conservative target.
Dan Steffens
Energy Prospectus Group
dan_s
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Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by dan_s »

Note below from Truist Financial 3-10-2023

Earthstone Energy, Inc. (ESTE, $13.69, Buy)
- Steady Efficient Plan to Provide Notable FCF
- Earthstone is a notably different company than just a year ago, producing ~100,000 boepd vs ~78,000 boepd a year ago, and just ~25,000 boepd a couple years ago.
The larger scale enables the company to run a
more active D&C program boosting what already was one of
the more efficient operations. We anticipate operations/well
returns to improve not only from a more active program but also
a larger high quality inventory base to drill. We estimate nearly
$500MM FCF or nearly the same as last year despite likely lower​
commodity prices and higher capital spend this year.
We are
reiterating our price target of $23. - Neal Dingmann
Dan Steffens
Energy Prospectus Group
dan_s
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Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by dan_s »

My updated profile on Earthstone has been posted to the EPG website. You can download it directly from the EPG home page.
Dan Steffens
Energy Prospectus Group
Fraser921
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Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by Fraser921 »

I take Dans number and divide by 2 , so 38/2= 19
- Neal Dingmann is @ 23

I think both numbers are at risk if crude plunges to the 60's or lower
dan_s
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Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by dan_s »

Every company is at risk if the price of what they produce declines.

It is easy to make money on well run oil and gas companies if you know where oil and gas prices are heading. It is up to each of us to decide where we think commodity prices are headed.

My take is that this world will be running on fossil fuels for many more decades and oil is the most important. I also believe that the "cheap oil" has been harvested and therefore oil prices will increase over time. Therefore, I look for upstream companies that have a lot of high-quality / low-risk development drilling inventory and the liquidity to bring those reserves to market. Earthstone and all of the Sweet 16 have lots of running room.

I also know that demand for oil is seasonal, and we are currently in the lowest demand quarter, but the highest demand quarter is just ahead.

For natural gas the U.S. market for gas is currently adequately supplied but there is not a "glut' of gas. The domestic market for U.S. natural gas is growing much faster than the global market for oil. Over the next two years the U.S. natural gas and NGL producers will gain a lot more access to the global markets for their products. My opinion is that U.S. natural gas prices will move toward the international market prices with more access. $2.50 is definitely not the "Right Price" for U.S. natural. The NYMEX strip for HH gas futures is telling me that higher gas prices are coming soon.

Another thing going for natural gas is that it is the "clean fossil fuel" and the U.S. is blessed to have an abundance of natural gas and the most advanced infrastructure to gather, process and transport gas it end users. If we had more knowledge people running our country we would be doing a better job of leveraging this advantage. I've said many times that "Natural gas is God's gift to America". It is also God's gift to Europe, but the Wacko's are in even more control across the pond.

This concludes my lecture for today.
Dan Steffens
Energy Prospectus Group
Fraser921
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Joined: Mon Mar 22, 2021 11:48 am

Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by Fraser921 »

Agree with your thesis, only question is timing.

I have a very short time horizon. Who knew 3 days ago the banking system would be brought to it's knees?
The politician's will blame others, that's how they roll.
Orindakid
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Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by Orindakid »

I like to look at the day rates of the deepwater offshore rigs to forecast what the PRO's are saying about long term oil and gas price. They are up 30 - 50% in the last year, with longer term contracts and rates and stacked rigs getting paid millions to remobilize. I am all in on oil and gas over the next 5 years. As the Cajuns say, the current pricing is "a pimple on a ducks ass". Stand back and look at all the stuff going on in the world. This business is here for the long term. Micromanaging every week or day is a waste of time.
Cheers.
Fraser921
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Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by Fraser921 »

I agree with everything you said except your last sentence. I like to micromanage.

I agree that's not for everybody and some people even though they like the names won't invest in them due to risk tolerance regardless of the price.

I heard a hedge fund blew up, they were short bonds and long oil. When rates fell this week, they had to unwind the trade

I don't like being a bagholder down 50%. Prices go from 120 to 65 or NG 10 to 2 you have to react hopefully not at the bottom.

I think we are nearing a bottom and have been nibbling at some names.
Ray_M
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Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by Ray_M »

Good points around timeframes and forecast price. Using Dan's models, I thought I'd do a what-if analysis to see the impact of $60 oil and $2.50 gas for all of 2023 and 2024. I kept the Fair Value Factor and weightings the same as in the individual models today. The model also used yesterday's (March 16) Closing prices to calculate the % Upside to Fair Value. With these prices, five companies still modeled to have a % Upside greater than 100%: CPE, CPG, ESTE, VTLE and SBOW. The lowest % Upside is Range Resources at 1.9%.

I'm using these results to review the current weight of my holdings.

This is a screenshot of the results across all Sweet-16 companies:
What-If Screenshot 2023-03-17 142738.jpg
What-If Screenshot 2023-03-17 142738.jpg (125.28 KiB) Viewed 1841 times

Pricing Table:

What-If Prices Screenshot 2023-03-17 142938.jpg
What-If Prices Screenshot 2023-03-17 142938.jpg (53.56 KiB) Viewed 1841 times
Roadster
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Re: Earthstone Energy (ESTE) Valuation Update - Mar 9

Post by Roadster »

Thanks Ray !!!!!
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