Why Earthstone Energy Inc. May Be Next Big Oil Momentum Stock

 |  Includes: ESTE, OIL
by: super-trades

Earthstone Energy, Inc. (NASDAQ:ESTE) completed a reverse split on January 3, 2011, in order to get listed on the Nasdaq. That left it with only 1.7m shares outstanding and a public float of 1.2m.

ESTE had EPS for the last 9 months of $0.69. Last quarter they had a one time deferred tax adjustment for statutory depletion. EBITDA grew to $2.3m for the first 9 months or $1.35 EBITDA per share for the first 9 months. The oil revenue for the first 9 months has been booked at an average price of $69 per barrel. (Recently oil is $98 per barrel).
The Company is expanding with new wells in the Bakken territory. "The Company continues to pursue its strategy of drilling non-operated horizontal Bakken wells along with the acquisition of producing properties in the Montana, and North Dakota, portions of the Williston basin."
Bakken oil stocks have exploded in the past year. BEXP, CLR and NOG are 3 of them.

DENVER, Sept. 23 -- EARTHSTONE ENERGY, INC. (OTC Bulletin Board: BSIC.ob old ESTE symbol) reported Panther Energy Company, LLC, its majority partner in the Banks Field, has sold its interest in the field, comprising nearly thirteen thousand gross mineral acres, to Brigham

Exploration Company. This sale does not affect Earthstone's leasehold rights in the area and Earthstone expects to retain its oil and gas interests. As in the past Earthstone intends to participate in new wells proposed by Brigham, or others, that "pool or space" our leasehold rights within spacing units they operate.

"We are not just excited by this development, we are ecstatic," commented Ray Singleton, president of Earthstone. "Brigham is on the forefront of the application of new stimulation technology in Bakken wells and has been instrumental in demonstrating the economic viability of this area of the Williston basin. With Brigham now involved, we expect the pace of development to heat up. Based on conversations with Brigham, we anticipate drilling one well, possibly two, on this acreage before the end of the calendar year."

CLR is at $69 and is expected to do $2.34 EPS this year for a P/E of 30
BEXP is at $35 and is expected to do $1.08 EPS this year for a P/E of 33
NOG is at $31 and is expected to do $0.36 EPS this year for a P/E of 88
Let's assume that ESTE has a conservative $1 EPS run rate. Applying the P/E ratios of CLR, BEXP, and NOG would give ESTE a price range of $30 to $88. Throw in the fact this has a minuscule float and number of outstanding shares and that is why I think ESTE has potential to be the next big oil momentum stock. I am long at $19.
Low float stocks can be volatile and dangerous and are not for chasing or large positions in my opinion.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Additional disclosure: I am long ESTE.