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Earthstone Energy Bagged Another Bargain

Summary

  • The Bighorn and Chisholm acquisitions are game changers for Earthstone Energy.
  • The deals appear to be darn good and accretive for shareholders.
  • The use of common shares keeps financial leverage low.
  • This management has bought and sold companies before creating Earthstone. So, the experience level at the top is unusually high for a company this size.
  • Management will get the purchase price back quickly to reuse as management sees fit.
  • This idea was discussed in more depth with members of my private investing community, Oil & Gas Value Research. Learn More »

Rise in gasoline prices concept with double exposure of digital screen with financial chart graphs and oil pumps on a field.

peshkov/iStock via Getty Images

I follow a fair number of managements that intend to be disciplined while making acquisitions. Earthstone Energy (NYSE:ESTE) management clearly "leads the pack" with some of the better bargains. Accretive shareholder deals often benefit shareholders far faster than

I analyze oil and gas companies like Earthstone Energy and related companies in my service, Oil & Gas Value Research, where I look for undervalued names in the oil and gas space. I break down everything you need to know about these companies -- the balance sheet, competitive position and development prospects. This article is an example of what I do. But for Oil & Gas Value Research members, they get it first and they get analysis on some companies that is not published on the free site. Interested? Sign up here for a free two-week trial.

This article was written by

Long Player profile picture
20.36K Followers

Long Player believes oil and gas is a boom-bust, cyclical industry. It takes patience, and it certainly helps to have experience. He has been focusing on this industry for years. He is a retired CPA, and holds an MBA and MA.

He leads the investing group Oil & Gas Value Research. He looks for under-followed oil companies and out-of-favor midstream companies that offer compelling opportunities. The group includes an active chat room in which Oil & Gas investors discuss recent information and share ideas. Learn more.

Analyst’s Disclosure: I/we have a beneficial long position in the shares of ESTE either through stock ownership, options, or other derivatives. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of stock. Investors are advised to review all company documents and press releases to see if the company fits their own investment qualifications.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (31)

B
Hi LP, just joined your group. Loved the article on ESTE. What would you say your top 5 to buy today are? Curious to know what position ESTE, if any, has on that list.
Long Player profile picture
@BillionaireBasics Thanks, right now its the natural gas group. But I also follow a lot of oil companies that sooner or later will adjust.
B
@Long Player On the SA page for this group before joining, it said you maintain a Buy list, how do I access it? How often do you update it? Is it also Ranked? New to the space...
C
@BillionaireBasics it’s on right hand side in subscribers’ section.
Dinesh S profile picture
Why stock down when OIL and NG both up
t
When Bighorn closes, will numbers go up a bunch? got any estimates?
Limestone Cowboy profile picture
Looks like they own half the acreage under the city of Carlsbad. Hopefully they got the surface as well, it's probably worth more than the oil. An old fashioned oil boomtown if I've ever seen one. Potash prices are rocketing upwards as well.
Long Player profile picture
@Limestone Cowboy This management usually does a solid job.
G
@Limestone Cowboy @@Long Player Can anyone confirm they have the surface rights to Carlsbad as well? That is a big deal. IR has not responded after a few days.
Long Player profile picture
@GuyRien1 You may have to call them. But my suspicion is that they may not (conservative assumption) unless you hear otherwise.
jimklawyer profile picture
The $14.20 to $14.62 range seems to me to be a pretty stout overhead resistance level for $ESTE. That, plus some very recent slight pullback in WTI and natgas spots, and my personal concerns about the cure for high oil and natgas prices being higher prices keeps my excitement level for ESTE down to the point where I'd be much more interested in the common shares at the $12 level.

Still, management appears to be running the company for positive cash flows and earnings now and maybe an eventual buyout at higher share prices at some point in the future.
Long Player profile picture
@jimklawyer when I owned GeoResources, one day I woke up and it was way higher. I suspect that will happen here.
j
Long player - thank you! What do we make of the rig count? When will we know oil prices are about to drop due to over supply. When I look the number is much lower than it was in 2014 but much higher than the last couple years, however production isn’t much higher than the last couple years. Is there a lag that occurs? Any insight would be helpful. Thank you!
Long Player profile picture
@jc4877 There is a lag. Plus you have to remember that it takes time to get things going again...people have to be trained etc....
In a lot of places, a well can be drilled in a few days which is at least 50%less than just a few years ago. So we won't need as many rigs. EIA shows production rising and that is the important part.
cenc profile picture
Este is now my largest position, among just a couple of producers I still hold. They are way under valued by the market, and they just keep adding value. At some point the market is going to notice how big they have grown while flying under the radar. My number one criteria in this market is low to no debt. when the music stops in the oil patch, they should be well positioned to take advantage of it.
G
@cenc You are saying you some your other producers? When? And what makes this company so under valued?
C
Thank you for another great below the radar find.
b
Nice, substantive review. Have been long ESTE 2+ years.
Long Player profile picture
@bilocellhi I have a small position that I may add to at some point.
Play Your Best Game profile picture
@Long Player Good article, thanks for writing it. Why don't you have a larger position at this time, given the positive points you explained? Are you expecting or requiring a better price vs. value?
Long Player profile picture
@Play Your Best Game I usually run out of money at a certain point. Generally have more ideas than money. Mostly though I tend to make baskets rather than load up on one.
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