Lonestar Resources (LONE) Update - August 19

[dan_s]

Cas Prewitt is one of EPG's "Top Shelf" MBA's, a graduate of the SMU MBA program.

I encourage our MBA's to give me their honest opinion of the companies assigned to them for quarterly profile updates. Here is what Cas had to say about LONE.

"The attached Lonestar Profile has been updated with 2Q19 info. This is a very interesting company with a lot of upside should sentiment in the market shift. I feel that it is just off the radar (of the Wall Street Gang), but is sound financially and has lots of room to run. FCF generation in 2019 of $5-20 million should get investors' attention."

I agree 100%. This summer the negativity over the energy sector in general has increased. Negativity over the upstream E&P sub-sector is even worse and even worse than that for small-caps like LONE. In 40 years, I cannot recall it being this bad and that includes the late '90s when WTI was stuck in the high teens. I was working at Hess in the 90s and I remember that we just prayed for oil to get back over $20/bbl.

LONE is now trading well below 1X cash flow from operations. 2018 Actual Net Income was $0.47/share with operating cash flow per share of $3.07.

As of TODAY:
> 5 Analyst Reports are included in the Reuters / First Call price target of $6.50. All five of them rate it a BUY. < Only one of the analysts has submitted a fresh report to Reuters since the company announced strong Q2 results and raised their production guidance.
> First Call's operating cash flow per share estimate, primarily based on outdated information, are $3.11 for 2019 and $4.47 for 2020.

I will review Cas' updated profile and we will publish it on Wednesday morning.

[cmm3rd]

Dan,

Glad to see that your MBA analyst is positive about LONE.

You quote him as saying, "FCF generation in 2019 of $5-20 million should get investors' attention."

Did he mean 2020? According to slide 3 of their August investor presentation, the company is guiding to $5-20 million in FCF in 2020, assuming $55 oil and $2.50 gas. But, the CEO recently presented to the Dallas EPG group, and perhaps he commented about FCF in H2 2019.

Thanks.

[dan_s]

Lonestar s/b FCF positive in 2H 2019 because production is surging.

From the press release.

Lonestar's Chief Executive Officer, Frank D. Bracken, III, commented, "Our technologically focused smart completions continue to deliver differential results that exceed our third-party type curves and our budget. In the second quarter, those well results are beginning to show up in our financial results. The third quarter is set to deliver even more impressive results, with July’s production having exceeded 16,000 BOE/d, as our new Horned Frog and Sooner wells are delivering impressive daily rates and were placed onstream ahead of schedule. Looking ahead, we see record production results in the third and fourth quarters of 2019, and strong growth in EBITDAX. Given the progress we made in 2019 we have the potential to achieve our previously issued production targets while drilling 20-25% fewer wells. With production anticipated to rise 19% and generate a substantial increase in EBITDAX, free cash flow generation of $5-$20 million is on the horizon. We have positioned Lonestar to thrive in the current environment and continue to build shareholder value.”

Cas quote probably should have said 2020, but Frank told me that this year's capex program was front-end loaded so he does expect to cover 2H 2019 D&C with cash flow from operations.

I will be finishing up the profile update on Wednesday, so I will comment on it tomorrow.

Note that the Brazo County sale late this year should also shore-up the balance sheet.