Stifel rates it a BUY with $30 price target. I DEFINITELY LIKE 55% PRODUCTION GROWTH FORECAST. - DAN
Strong Growth Potential
An emerging multi-zone horizontal Cotton Valley sand play in north Louisiana's
Terryville Field could drive our proved NAV estimate to $40/share at YE16 from
$7/share at YE13 and annual production growth of 55% over this three-year
period. Our total risked NAV is currently based on 180 net Terryville drilling
locations, or less than 20% of the 990 net locations identified in the field. The latter
implies a 28-year inventory based on the 2014 drilling pace.
Best-In-Class Returns
Prolific Terryville wells are generating returns as strong as or stronger than the
best shale plays in the country. Based on 30-day rates, 20 of Memorial's first 27
wells in the field ranked in the top 1.8% of industry wells completed since 2012 and
had an average payout of only 7.2 months. Well economics are improving as costs
per 1,000 ft of lateral are down to $370 from $2,221 at YE10 while productivity is
increasing with longer laterals and improved completion designs. The company's
last four wells are the strongest to date in their respective zones.
Excess Takeaway Capacity
Unlike the Marcellus Shale, which is battling limited takeaway capacity, Terryville is
located in an area with idle pipeline and processing infrastructure. Three major
pipelines currently have an estimated 6 to 7 Bcf/d of incremental availability on
their systems.