Parsley Energy (PE) Q2 Results - Aug 7

[dan_s]

Everything is down today, but PE is getting some serious "love". It is one of my Top Picks in our Sweet 16 because it is trading at 3X operating cash flow per share and it has 25% YOY production growth locked in. - Dan

Second Quarter 2019 Highlights

Net oil production increased 10% quarter-over-quarter and 28% year-over-year to 86.6 MBo per day.
Total net production averaged 140.1 MBoe per day. < This compares to my forecast of 130,500 Boepd for Q2.

The Company registered favorable trends in operating costs during the second quarter of 2019.
Parsley is tightening its 2019 capital budget guidance from $1.35-$1.55 billion to $1.40-$1.49 billion.
The Company is increasing full-year 2019 net oil production guidance from 80.0-85.0 MBo per day to 85.0-86.5 MBo per day.
At the midpoint, the updated range translates to estimated year-over-year organic growth of nearly 25%.

Summary Comment and Outlook

"When we unveiled our 2019 development plan, we pointed to this year representing a critical next step in Parsley's corporate evolution. We set a course aiming to take a step forward to sustainable free cash flow, while delivering a step-change improvement in capital efficiency," said Matt Gallagher, Parsley's President and CEO. "I am proud of the strides we have made on our 2019 action plan and our updated guidance ranges reflect the high level of execution delivered across the organization. We are now positioned to generate free cash flow for the remainder of the year, which will cement a core tenet of our 2019 action plan. Furthermore, I am excited that Parsley Energy is now on a trajectory toward growing free cash flow, ultimately increasing visibility for the return of capital to shareholders."
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Stifel's take: Parsley Energy, Inc. (PE, $14.13, Buy; Target $31.00) by Michael Scialla

Improving Capital Efficiency Drives Beat & Raise

We view the release as positive.
The positives include: i) a 12% CFPS beat; ii) 2Q19 oil production beat consensus by 6% while 2019 oil production guidance increased 4% (2% above consensus) on
slightly lower capex; iii) capital efficiency is ahead of plan; iv) oil rates/ft from 25 wells completed in Upton County on wider spacing (~880' vs ~660') are
tracking 9% above the 2018 average, albeit only slightly ahead of our type curve; v) we forecast positive 2H19 FCF based on recent strip prices.
The only negative: i) 2Q19 completion efficiency declined 6% from 1Q19.

[dan_s]

I have updated my forecast/valuation model for PE and it will be posted to the EPG website this evening.

In a nut shell:
> Parsley beat Q2 production forecasts by a wide margin.
> Despite super low natural gas prices and lower NGL prices, the company s/b funding all capex in the future with cash flow from operations < EVEN IF OIL STAYS AT $50/BBL FOREVER.
> They raised production guidance for the year.
> Exit rate for 2019 s/b near 150,000 Boepd (~63% crude oil), so my 2020 forecast now looks like it is based on a very conservative production forecast.

For now, I am leaving my valuation at $30/share, but there is a lot more upside on this one if oil prices move over $60/bbl.