Chaparral Energy (CHAP) Update - June 21

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Chaparral Energy (CHAP) Update - June 21

Post by dan_s »

CHAP is currently trading at $3.88/share. My valuation is $15.00/share.

Note below from John White at Roth Capital dated June 20, 2019.

Our valuation is based on a net asset value (NAV) analysis which produced $27.08 per share which we adjusted lower to $27.00 which is our price target.

CHAP: Don’t Paint CHAP with the AMR Negative Brush < I agree with John, that investors are comparing CHAP to AMR when the comparison is not justified.

This note highlights CHAP’s good Reserve Replacement Cost (RRC), compares and contrasts the differences between CHAP’s acreage and completion methods with Alta Mesa Resources’ (AMR-NC) early and unsuccessful drilling and completions campaign. We are also introducing our 2020 quarterly estimates and full year 2021 estimates.

We have noticed the negative news articles on the STACK/SCOOP/MERGE plays has continued, with the most recent we have seen being by Reuters on June 13, 2019. We notice these articles tend to paint these plays with a broad negative brush. Like any shale play, these plays have the so-called “sweet spots” and “not so sweet spots.” Through our recent, detailed conversations with members of the CHAP management team, we have learned how important specific acreage locations within the STACK/MERGE plays are and why these specific acreage locations are so critical to drilling and completion success. Specifically we are referring to the tremendous influence the Nemaha Ridge, a major structural feature of the Anadarko Basin, has on the quality of an acreage position. This is detailed on pages two through four.

We want to highlight CHAP’s one year and three year Reserve Replacement Cost (RRC). CHAP’s one year RRC is a respectable $10.60/BOE, in line with our E&P coverage average of $10.42/BOE. CHAP’s three year RRC is $15.45/BOE higher than our coverage average of $10.90/BOE. However, during the 2016-2018 period CHAP has executed on a sizable non-core property divestiture program totaling about 81 million BOE. Adjusting our RRC model for the asset sales results in a one year CHAP RRC of $8.90/BOE and a three year RRC of $5.54/BOE, both very compelling RRC figures. The figures demonstrate, in our view, the strong characteristics of the asset base and CHAP’s management and technical expertise.
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If you'd like to read John's full report, which includes a detailed forecast model, send me an e-mail and I will forward it to you. dmsteffens@comcast.net
Dan Steffens
Energy Prospectus Group
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