Chaparral Energy (CHAP) Update - May 25

[dan_s]

Chaparral expects second quarter 2019 total company production to be between 26.0 and 27.5 MBoe/d, which, based on the midpoint of this range, marks a growth rate of approximately 28% compared to the first quarter of 2019. Total STACK production for the second quarter is forecasted to increase to 21.5 to 23.0 MBoe/d or approximately 40% on a quarter-over-quarter basis when using this midpoint. The expected increase in production is due to the timing of first sales associated with Chaparral’s spacing tests and new well performance. The company is re-affirming its original CAPEX guidance range of $275 to $300 million for the full year 2019.

They also reaffirmed their full-year production guidance of 25,000 to 27,000 Boepd. Since the first eleven wells are producing at or above the pre-drill type curves, I expect CHAP's production to be near the high end of their guidance, but I am using the midpoint in my forecast/valuation model. They should exit 2019 with production over 31,000 Boepd.

CHAP's Reported Loss (GAAP) for Q1 was $103.5 million or $2.24 per share. Almost the entire reported loss was caused by their mark-to-market writedown on hedges ($51.5 million) and the non-cash Ceiling Test writedown on their oil & gas assets ($49.7 million). In contrast, their Adjusted Cash Flow from Operations was $22.0 million or $0.47/share.

As noted in the first paragraph above, CHAP's production is going way up in Q2 because they completed all 11 of the wells they drilled in Q1 at the end of Q1 or in April. They are now developing their leasehold from multi-well pads so production comes on in bunches. They are on-track for 25% to 30% year-over-year production growth in 2019. The company's balance sheet is in good shape and they have more than enough liquidity to fund this year's drilling program.

CHAP has very little analysts coverage. Only three analysts have submitted reports to Reuters / First Call and they are all dated prior to CHAP's Q1 earnings release. Their valuations range from $10.00 to $27.00 per share. First Call's price target of $18.38/share has been the same for several months.