January 4, 2022, CHICAGO, IL – Water Tower Research (www.watertowerresearch.com) has published an Initiation of Coverage report on Earthstone Energy, Inc. (NYSE: ESTE). The report is titled “Two Pronged Growth: Acquisitions and Development Drilling”.

Earthstone Energy is a growth-oriented independent oil and gas company. The core asset base consists of ~137,400 net acres in the Permian Basin. The company also owns a smaller position in the Eagle Ford trend in south Texas.

2021 was a transformational year for Earthstone.  The company closed four acquisitions and announced an agreement on December 16, 2021 to acquire Delaware Basin assets from Chisholm Energy Holdings, LLC. All five deals amount to an aggregate value of approximately $1 billion. The acquisitions add nearly 80 million BOE of proved reserves, approximately 35.7 MBOE/d of production, and a sizeable inventory of drilling locations in the Permian Basin. The Chisholm acquisition is expected to close during the first quarter of 2022.

Earthstone is entering 2022 with a Permian Basin development inventory that could sustain a planned four-rig capital program for many years. Management’s preliminary capital program calls for operating two rigs in the Midland Basin and maintaining two rigs in the Delaware Basin following the Chisholm close.

The company is trading at 3.2x Water Tower Research’s FY22E EBITDAX, which models a March 31, 2022 Chisholm close.  Using management’s pro forma FY22E EBITDAX estimate, which includes a full-year Chisholm contribution, the multiple is 3.1x.  We estimate the company will maintain a solid financial position and end 2022 with a leverage ratio around 1.0x.

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