Permian Scale Supports Free Cash Flow Capacity
|52 Week Range||$9.41-$22.25|
|Avg. Daily Vol. (30 day)||1,613,000|
|Shares Out (MM)||139.7|
|Market Cap (MM)||$1,722|
|Enterprise Value ($MM)||$2,914|
|Revenue TTM (MM)||$1,344|
|Fiscal Year End||December|
- Acquisitions have positioned Earthstone to generate significant free cash flow. 4Q22 financial and operating results will be the first to include the cumulative effect of three major acquisitions that closed in the first eight months of 2022.
- The midpoint of 4Q22 production guidance (98-102 MBOE/d) reflects a ~230% Y/Y increase from 4Q21. Our 4Q22 EBITDA estimate reflects a near 300% Y/Y increase from 4Q21.
- Earthstone’s Permian Basin asset base provides the flexibility to allocate development capital across a deep inventory, depending on the prevailing cost and commodity price environment. Management estimates its ~256,000 net acres in the basin expose the company to 890 gross operated development locations, including 528 acquired during 2022 in the Delaware Basin.
- Results from 3Q22 development drilling met or exceeded management’s estimates. Earthstone operates five rigs across its acreage, including three in the Delaware Basin and two in the Midland Basin.
- We expect Earthstone to provide operating and financial guidance for 2023 in 1Q23. The current five-rig pace is expected to sustain production level with 4Q22.
- Our FY23 earnings and cash flow estimates are predicated on 100 MBOE/d of production and costs similar to 4Q22. We estimate FY23 EBITDA of $1,378 million. Estimated free cash flow could be used to reduce borrowings, fund incremental acquisitions, and possibly a cash-return-to-shareholders’ scheme at some point next year.
- On an adjusted EV/EBITDA basis, Earthstone is trading at 1.7x our FY23 estimates.
Acquisitions have positioned Earthstone to generate significant free cash flow. 4Q22 financial and operating results will be the first to include the cumulative effect of three major acquisitions that closed in the first eight months of 2022.
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