Alta Mesa Resources (AMR) - Jan 21

[dan_s]

AMR has been on my Watch List since going public in early 2018. The company grew production ~24% year-over-year in 2018, but they made a big mistake of "over-promising and under-delivering" on their guidance. Plus, they significantly outspent their operating cash flow to generate what turned out to be modest growth.

James Hackett, former CEO of Anadarko Petroleum (APC) has taken over as the CEO. < This is what makes AMR an "interesting" small-cap.
Read more about the change of the leadership team:
https://www.bizjournals.com/houston/new ... yptr=yahoo

Since Hackett took over, two Wall Street firms have updated their forecast/valuation models for AMR:
> John Nelson at Goldman Sachs rated AMR a HOLD on 11/27/2018 with a valuation of $2.50
> Irene Haas at Imperial Capital rated AMR a HOLD on 12/24/2018 with a valuation of $6.00

It appears that Hackett now has an experienced and well-respected team put together.
IMO here is what needs to happen for the share price to go up from $1.17 (where it closed on Jan. 18):
1. AMR must report modest production growth from Q3 to Q4. < I'm fairly sure this will happen since September production was ~36,800 Boepd, compared to Q3 production of 33,405 Boepd.
2. They need to announce a 2019 capex program that will keep increasing production and be near projected operating cash flow. < My forecast assumes a two rig program that should be funded by $200 to $230 million in operating cash flow.
3. Disappointing 2018 results seem to indicate that their STACK leasehold is of lower quality than the market expected when AMR went public. Hackett needs to address this issue when they release Q4 results and their 2019 capital program. < 2018 results might be the results of poor quality rock or poor well completion design. The rock cannot be fixed, but well completions and proper well spacing can be fixed.

AMR = HIGH RISK, but it definitely has HIGH RETURN potential.

I have updated my forecast model for AMR assuming that their leasehold is not "goat pasture" and they can design and fund a better capital program. My valuation is $4.50 per share.

James Hackett
Executive Chairman of the Board and Interim Chief Executive Officer
Mr. Hackett joined Alta Mesa in early 2018 and currently serves as its Executive Chairman of the Board and Interim Chief Executive Officer. Mr. Hackett has been a partner at Riverstone since 2013 and previously served as the Chairman of the Board and the Chief Executive Officer of Anadarko Petroleum Corporation. Before joining Anadarko, Mr. Hackett served as President and Chief Operating Officer of Devon Energy Corporation, following its merger with Ocean Energy, where he had served as Chairman, President, and Chief Executive Officer. Mr. Hackett has held senior positions at Seagull, Duke Energy, and Pan Energy. He also held positions in engineering, finance and marketing in the midstream, oil field services, and power sectors of the energy industry. Mr. Hackett serves on the Board of Directors of Enterprise Products Holdings, LLC, Fluor Corporation (NYSE: FLR), National Oilwell Varco, Inc. (NYSE: NOV), Sierra Oil and Gas and Talen Energy Corporation and Crimson Resources. Mr. Hackett is a former Chairman of the Board of the Federal Reserve Bank of Dallas. Mr. Hackett received a Bachelor of Science degree from the University of Illinois, a Master in Business Administration from Harvard Business School and later a Master of Theological Studies degree from Harvard Divinity School.


Randy Limbacher
President
Mr. Limbacher joined Alta Mesa in 2018 and currently serves as its President and previously served as the Chief Executive Officer of Meridian Energy LLC (a Houston based energy advisory firm). Prior to joining the Company, he served as President, Chief Executive Officer and a Director of Samson Resources Corporation, starting in 2013. Mr. Limbacher served as Vice Chairman of the Board of Directors of Samson in 2016 and 2017. In 2007, Mr. Limbacher was employed as President and Chief Executive Officer and a Director of Rosetta Resources, Inc., a Houston-based oil and natural gas company. From February 2010 until February 2013, Mr. Limbacher also served as Chairman of the Board of Rosetta. In 2006, Mr. Limbacher took the position of President, Exploration and Production — Americas for ConocoPhillips. Prior to that time, Mr. Limbacher spent over twenty years with Burlington Resources Inc., where he served as Executive Vice President and Chief Operating Officer from 2002 until it was acquired by ConocoPhillips in 2006. He previously was a Director of Burlington Resources and currently serves on the board of directors of CARBO Ceramics Inc. (NYSE: CRR) and TransCanada Corporation (NYSE: TRP). Mr. Limbacher received a Bachelor of Science degree in petroleum engineering from Louisiana State University in 1980.

[dan_s]

I have posted my updated profile and my forecast/valuation model for AMR to our website.

Stifel published a report in late November on AMR. They rate it a BUY with a $5.00 price target. If you'd like to see a copy of the Stifel report, just send an email to dmsteffens@comcast.net

Take a look at the one year stock chart for AMR. Wall Street took this company to the woodshed and the beatings have continued until recently when James Hackett assembled a fine leadership team. They have a lot of work to do to regain Wall Street's respect, but the right people can make a big difference in this business.

I am not putting AMR in our Small-Cap Growth Portfolio, but it remains high on my Watch List.