Parsley Energy (PE)

[dan_s]

Stifel: "We are raising our target price 13% to $34/share based on continued outperformance of PE's first operated Southern Delaware Wolfcamp and strong results from offset operators."

Recent Third-Party Southern Delaware Acquisition Raises The Bar: FANG
(not covered) recently announced its entrance into the Delaware Basin with the
acquisition of 19,180 net acres situated just east of PE's growing Southern
Delaware position in eastern Reeves County, TX. FANG paid ~$26,000/acre (after
backing out production), significantly more than PE's recent acquisitions which
averaged $9,500/acre. FANG estimates its newly acquired acreage holds 290 net
locations across four zones with potential upside (additional zones/downspacing).
Due the early nature of the of surrounding results, we are currently giving PE
credit for only 50% of one zone (Wolfcamp A) across its entire Southern
Delaware position. We think it is extremely likely PE bid on the FANG package,
but was unsuccessful due to the assets ultimately selling above management's
price and risk thresholds for the relatively unproven acreage.

Early-Time Data Suggests Southern Delaware Wolfcamp Beating Type Curve:
After analyzing the 20 most nearby wells to PE's 41,609 net acre position, we
estimate results are trending above our new 1,000 MBoe type curve (based on a
7,500' lateral). The company's first operated well, the Trees State
16-1H, and the Jagged Peak-operated Cilantro 2524-C3-1H, are beating our type
curve by 23% after being online 6 months.

Midland Wolfcamp Results Continue to Trend In Line with Expectations: After
disaggregating the company's core Midland acreage in May (see: Raising NAV and
Target Price on Improving Well Performance ), we refreshed our analysis and found
results continue to trend in line with our 1.2 MMBoe and 1 MMBoe type curves in
the Northern Upton and Central Upton/Reagan areas, respectively.

Activity Set to Ramp in '17, Southern Delaware Becoming Larger Focus: PE
is currently running 4 rigs - 3 in the Midland and 1 in the Southern Delaware Basin.
We expect the company will add 2 rigs to its Southern Delaware assets during
1Q17. Based on a 6 rig program, we believe PE will grow 2017 production 43% y/y
(after growing ~55% in both '15, and '16E). Importantly, we expect the oil volume
growth will be 74% and 44% in '16 and '17. Based on these estimates, we project
the company will exit '16 and '17 with leverage ratios of 2.2x and 1.8x net
debt/TTM EBITDA. Should oil/natural gas prices remain depressed averaging
$40/$2.50 through YE17, we estimate PE will exit '17 at 3.2x.

This is good news for all of our Permian Basin companies: CRZO, CXO, EOG, FANG, PE, PXD, SM, CPE, ESTE, LPI, MTDR, RSPP

[dan_s]

I have updated my forecast model for PE and I am raising my valuation $4.00 to $33.50. PE is now on-track to grow production by more than 50% YOY in 2016 and if they stay with the six rig program, they will probably do it again in 2017.