RRC and SM Updates - June 10

[dan_s]

This morning Stifel sent out a research note that highlights companies that are doing something to de-leverage their balance sheets ("Exploring Extended Balance Sheet Situations and Equity Upside"). The note had the following to say about two of our model portfolio companies.

> Upstream (Oil) - SM Energy (SM) has carried a heavy debt load (leverage of ~3x) since the company established a position in Howard
County, TX. Despite strong well performance, which rank among the best in the Midland Basin, the stock continues to trade at a discount
to the group (9% based on EV/2020 EBITDA). We anticipate the discount could reverse to a premium next year when net debt/EBITDA
should decline to 2.4x, near our group average of 2.2x. A potential asset sale could accelerate the deleveraging process.

> Upstream (Gas) - Range Resources (RRC) has leverage of 3.1x, but trades at a 1.3x premium to peers due to its deep inventory base.
RRC is actively marketing Northeast PA assets and another 2% of its royalty interest in Southwest PA. Asset sales proceeds and discretionary CF will
continue to be directed towards debt reduction, while we project leverage metrics to improve from 3.8x in 2019 to 3.3x in 2021.
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In the details of the report, I see that Stifel's current price targets at $38 for SM and $16 for RRC.

Stifel:
RRC
Our target price of $16.00 is based on a 10% discount to our 4P NAV. Our target price is based on the long-term Henry Hub price of
$2.25/mcf and WTI price of $65.00/bbl. Risks to our thesis include, but are not limited to: 1) pipeline approval delays; 2) a further decline
in or sustained period of depressed oil and gas prices; 3) North American oil and gas production levels increasing or declining faster than
expected; 4) higher than anticipated in-basin gas-on-gas competition; 5) weather conditions; and 6) governmental regulatory changes.
SM
Our $38.00 target is based on a 30% discount to NAV which uses $57.86/bbl WTI in 2019, normalizing to a $65.00/bbl long-term price.
Risks to target price include commodity price, well performance, reserve assumptions, availability of capital, and regulatory/environmental
risks.