Lonestar Resources - Updated Forecast on August 6
Posted: Tue Aug 06, 2019 10:05 am
I have updated my forecast/valuation model for Lonestar and posted it to the EPG website.
Notes:
> Like all upstream companies with lots of their production hedged, Net Income is a misleading number. FOCUS ON CASH FLOW FROM OPERATIONS.
> My Cash Flow From Operations actuals and forecasts are net of preferred stock dividends THAT LONESTAR HAS BEEN PAYING "IN KIND".
> In order for Lonestar to hit their fresh production guidance, the company is on-track to have an exit rate this year that is higher than the top end of their 2020 production forecast. IMO Frank is definitely "under-promising so he can over-deliver" on production. This is why my 2020 forecast is based on production of 19,000 Boepd rather than the high end of the company's guidance.
> My 2020 forecast assumes all preferred stock, warrants, stock appreciation rights and restricted stock units (shown on page 6 of the 10Q) will be converted to common stock in 2020. The odds of them all being converted are zero, but now my valuation is based on a "super conservative" share count.
> You can all expect to see a very encouraging operations update on the new Sooner prospect HZ wells in September. Extended reach horizontal wells in that area should have VERY HIGH IP-30 rates. See slide 10 of the CC slides posted to the Lonestar website today.
Small-caps with this kind of production growth, 72.4% in 2018 and ~35% in 2019 and running room (at least 200 high quality HZ drilling locations), should be trading for AT LEAST 6X operating cash flow per share.
You should all listen to a replay of the conference call and follow along on the slides.
PS: I wish none of their oil was hedged, but their hedging program does significantly reduce the commodity price risk. The actual commodity prices shown at the bottom of my forecast/valuation model includes the cash settlements on their hedges that were paid during each quarter.
Notes:
> Like all upstream companies with lots of their production hedged, Net Income is a misleading number. FOCUS ON CASH FLOW FROM OPERATIONS.
> My Cash Flow From Operations actuals and forecasts are net of preferred stock dividends THAT LONESTAR HAS BEEN PAYING "IN KIND".
> In order for Lonestar to hit their fresh production guidance, the company is on-track to have an exit rate this year that is higher than the top end of their 2020 production forecast. IMO Frank is definitely "under-promising so he can over-deliver" on production. This is why my 2020 forecast is based on production of 19,000 Boepd rather than the high end of the company's guidance.
> My 2020 forecast assumes all preferred stock, warrants, stock appreciation rights and restricted stock units (shown on page 6 of the 10Q) will be converted to common stock in 2020. The odds of them all being converted are zero, but now my valuation is based on a "super conservative" share count.
> You can all expect to see a very encouraging operations update on the new Sooner prospect HZ wells in September. Extended reach horizontal wells in that area should have VERY HIGH IP-30 rates. See slide 10 of the CC slides posted to the Lonestar website today.
Small-caps with this kind of production growth, 72.4% in 2018 and ~35% in 2019 and running room (at least 200 high quality HZ drilling locations), should be trading for AT LEAST 6X operating cash flow per share.
You should all listen to a replay of the conference call and follow along on the slides.
PS: I wish none of their oil was hedged, but their hedging program does significantly reduce the commodity price risk. The actual commodity prices shown at the bottom of my forecast/valuation model includes the cash settlements on their hedges that were paid during each quarter.