Target Price Raised on Energy Firm Making ‘Transformative Acquisition’

Source: Streetwise Reports   01/06/2021

The terms and benefits of Earthstone Energy’s purchase of an oil and gas company, an “eye-catching act of deal making,” are presented in a ROTH Capital Partners report.

In a Jan. 4 research note, ROTH Capital Partners analyst John White reported that ROTH Capital Partners is increasing its price target on Earthstone Energy Inc. (ESTE:NYSE.MKT) to $10.50 per share following its acquisition announcement. The current share price is about $6.26.

Earthstone Energy agreed to purchase Independence Resources Management for $185.9 million, composed of $135.2 million cash and 12.7 million common stock shares. Independence is a private, Texas-based, Midland Basin-focused explorer and producer (E&P).

Through the transaction Earthstone will gain an average production of 8,780 barrels of oil equivalent per day with 66% oil during Q3/20, 4,900 core net acres and 70 undeveloped horizontal locations.

White laid out why the acquisition is favorable for Earthstone.

For one, it will increase the Colorado-headquartered energy firm’s size, resulting in a higher stock valuation in the intermediate and long term.

“The addition of Independence’s production represents a 52% increase over Earthstone’s actual Q3/20 production,” White specified.

Because larger exploration and production companies typically trade at a higher valuation, and Earthstone’s valuation is currently below that, there is “upside in the potential for multiple expansion,” he added.

Another benefit is that the terms of the deal are attractive, the purchase price multiple being about 2.3x. Also, the value of Independence’s proved reserves is such that Earthstone will essentially get them for free.

“All in all, [it was] an eye-catching act of deal making,” commented White.

Third, the location of Independence’s core properties, near Earthstone’s assets, is ideal. Also, the acquiree’s acreage is of high quality and with seemingly low risk for reserves and production, from the Middle Spraberry, Lower Spraberry and Wolfcamp A zones and, potentially, other locations in the Jo Mill, Wolfcamp B and Wolfcamp D formations.

ROTH Capital has a Buy rating on Earthstone.

Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports’ terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the decision to publish an article until three business days after the publication of the article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from ROTH Capital Partners, Earthstone Energy Inc., Company Note, January 4, 2021

Regulation Analyst Certification (“Reg AC”): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.

ROTH makes a market in shares of Earthstone Energy, Inc. and as such, buys and sells from customers on a principal basis.

Shares of Earthstone Energy, Inc. may be subject to the Securities and Exchange Commission’s Penny Stock Rules, which
may set forth sales practice requirements for certain low-priced securities.

ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months.