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Earthstone Energy Provides 2023 Guidance After A Strong Finish To 2022

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Earthstone Energy (NYSE:ESTE) produced good above expectations successful Q4 2022, pinch lipid accumulation that was 9% supra its guidance midpoint. It besides provided 2023 guidance for astir 100,000 BOEPD successful mean accumulation during 2023. At existent high-$70s lipid portion (and pinch anemic near-term earthy state prices), Earthstone is projected to make adjacent to $300 cardinal successful free rate travel and extremity 2023 pinch 0.6x leverage.

Earthstone besides provided accusation connected its reserves, and updating that for existent portion results successful an estimated worth of adjacent to $16 per stock utilizing a 0.9x aggregate to PD PV-10. Earthstone's outlook for 2023 is reasonably adjacent to what I had modeled for it before. It is dealing pinch a spot of further costs inflation, but that is balanced retired by its beardown decorativeness to 2022.

Q4 2022 Update

Earthstone's Q4 2022 accumulation was rather strong. It initially provided guidance for 98,000 to 102,000 BOEPD successful mean accumulation for Q4 2022, pinch a 43% lipid cut. Earthstone ended up pinch 104,766 BOEPD successful accumulation during Q4 2022, pinch a 45% lipid cut. Thus its full accumulation for Q4 2022 was 5% supra nan midpoint of its guidance and its lipid accumulation was 9% supra nan midpoint of its guidance. Earthstone's capex for nan 4th was wrong its guidance range.

This contributed to Earthstone ending 2022 pinch little indebtedness than I had modeled. Earthstone reported having $1.07 cardinal successful indebtedness main outstanding astatine nan extremity of 2022, compared to my projection for $1.11 cardinal successful nett debt. Earthstone besides reduced its indebtedness a spot from a insignificant Midland Basin sale. It received $21 cardinal successful nett proceeds from nan divestiture of its Sugg Ranch assets, which included 850 BOEPD successful 2022 production.

Notes On Sugg Ranch

The Sugg Ranch assets included complete 30,000 nett acres successful Sterling, Tom Green and Irion Counties. These assets were acquired arsenic portion of the IRM acquisition backmost successful 2021, but were nan fringe acreage constituent of nan deal. Earthstone added inventory from Midland and Ector Counties arsenic portion of that deal, but did not declare immoderate inventory from Sugg Ranch, which astir wholly consists of debased measurement vertical wells. The $21 cardinal waste value is simply a discount to PDP PV-10, which Earthstone estimated astatine $35 cardinal astatine nan clip (for Sugg Ranch alone), albeit pinch guardant twelvemonth lipid prices adjacent $90, on pinch beardown earthy state prices.

2023 Outlook

I had antecedently modeled a script wherever Earthstone maintained 2023 accumulation astatine Q4 2022 levels. Earthstone antecedently expected to mean astir 100,000 BOEPD successful Q4 2022, but ended up beating its guidance by astir 5%.

Earthstone's charismatic 2023 guidance keeps accumulation expectations astatine erstwhile levels of astir 100,000 BOEPD, but bumps up nan lipid trim somewhat from 43% to 44%. Earthstone besides divested a mini magnitude of accumulation successful Q4 2022 arsenic mentioned above.

At existent portion of high-$70s WTI oil, Earthstone whitethorn make astir $1.615 cardinal successful revenues earlier hedges now. Earthstone's 2023 hedges look to person astir neutral worth astatine existent strip.

Type Units $/Unit $ Million
Oil (Barrels) 16,060,000 $79.00 $1,269
NGLs (Barrels) 9,125,000 $30.50 $278
Natural Gas [MCF] 67,890,000 $1.00 $68
Total Revenue $1,615

Compare to erstwhile I modeled Earthstone's 2023 results successful December, it appears to expect somewhat higher costs that are astir mid-single digits percent higher than my exemplary (which was done astatine low-$70s oil).

Expenses $ Million
Lease Operating $315
Production Taxes $121
Cash G&A $52
Cash Interest $70
Capital Expenditures $750
Cash Income Taxes $20
Total Expenses $1,328

Earthstone is now projected to make $287 cardinal successful affirmative rate travel astatine existent portion prices successful 2023, inclusive of nan effect of rate income taxes.

Notes On Debt And Valuation

This would let Earthstone to trim its nett indebtedness to astir $783 cardinal astatine nan extremity of 2023, assuming nary further acquisitions aliases divestures and nary further spending connected stock repurchases. This would springiness Earthstone leverage of astir 0.6x astatine nan extremity of 2023.

Earthstone reported having proved reserves pinch a PV-10 of $7.79 billion, including PD reserves pinch a PV-10 of $5.84 cardinal astatine nan extremity of 2022. This was based connected SEC pricing though, which included $93.67 lipid and $6.36 earthy state arsenic benchmark prices though.

Earthstone besides provided reserve valuations astatine portion prices (from nan extremity of 2022), which is much relevant. This included proved reserves pinch a PV-10 of $4.56 cardinal and PD reserves pinch a PV-10 of $3.62 billion.

The existent lipid portion is beautiful akin to what it was astatine nan extremity of 2022, but earthy state prices person slumped a adjacent spot from nan $4.30 successful 2023 and $4.28 successful 2024 that Earthstone utilized successful its calculations. The existent earthy state portion is astir $3.00 successful 2023 and $3.63 successful 2024.

Adjusting for existent portion results successful a PV-10 estimate of $3.3 cardinal to $3.4 cardinal for Earthstone's PD reserves.

If we usage a 0.9x aggregate to $3.35 billion, that results successful an estimated worth of $3.015 cardinal for Earthstone. Subtracting nan projected year-end 2023 nett indebtedness of $783 cardinal results successful an estimated worth of $15.94 per stock for Earthstone assuming 140 cardinal outstanding shares.

Conclusion

Earthstone's Q4 2022 accumulation was rather strong, astatine 5% supra guidance midpoint for full accumulation and 9% supra guidance midpoint for lipid production.

Going guardant into 2023, Earthstone is aiming to mean astir 100,000 BOEPD. At that accumulation level it should beryllium capable to make astir $287 cardinal successful free rate travel aft nan effect of rate income taxes. This would trim its leverage to astir 0.6x by nan extremity of 2023.

Earthstone is affected by anemic Permian earthy state prices much than mean owed to 31% of its accumulation being earthy gas. It had added immoderate fairly gassy assets before.

Based connected existent portion though (which incorporates weaker near-term state prices), Earthstone should still beryllium worthy adjacent to $16 per stock assuming a 0.9x aggregate to PDP PV-10.

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Editor: Naga



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