RSP Permian (RSPP)

[dan_s]

RSP Permian (RSPP) reported Q4 results on 2/27. Production exceeded my forecast.

Highlights for the Fourth Quarter and Full Year 2016:

4Q16 production increased 48% to 35.8 MBoe/d (71% oil, 88% liquids), compared to 4Q15
Full year 2016 production increased 39% to 29.2 MBoe/d (73% oil, 89% liquids), compared to 2015
4Q16 net income of $1.4 million, or $0.01 per diluted share. Adjusted net income, which does not include certain items, was $13.4 million, or $0.10 per diluted share
4Q16 adjusted EBITDAX increased 22% to $90.5 million compared to 4Q15
4Q16 cash operating expenses of $9.11/Boe, 23% below 2015 average of $11.85
4Q16 development capital expenditures of $95.5 million
Full year 2016 development capital expenditures of $294.2 million
Entry into the Delaware Basin with previously announced $2.4 billion acquisition of Silver Hill Energy Partners, LLC ("SHEP I") and pending acquisition of Silver Hill E&P II, LLC ("SHEP II"), expected to close March 1, 2017
Maintained strong year-end liquidity position and balance sheet, pro forma closing of SHEP II with $109 million of cash and no borrowings outstanding under revolving credit facility
Amended and restated credit facility, extending maturity date to December 2021, increasing borrowing base to $1.1 billion upon closing SHEP II, and increasing lender's commitments to $2.5 billion
Pro forma proved reserves increased by 78% to 283 MMBoe(1) (70% oil, 88% liquids) over 2015
Achieved low drill-bit finding and development cost of $4.05/Boe with an 848% reserve replacement ratio and a 684% organic reserve replacement ratio(2)
Recent Midland Basin Well Results

Mask 1004/1005 two-well pad in Midland County: Two 9,500' lateral wells, targeting the Lower Spraberry and Wolfcamp B formations, flowed naturally producing almost 200,000 Boe before being put on electric submersible pump ("ESP") and establishing peak 30-day average rate of 2,932 Boe/d (73% oil)
Spanish Trail 344 two-well pad and Spanish Trail 341 two-well pad: Four 6,500' lateral wells, with two wells each targeting the Wolfcamp A and Wolfcamp B formations, established a peak 30-day average rate of 6,212 Boe/d (79% oil) and produced in excess of 250,000 Boe in less than 60 days
2017 Guidance and 2018 and 2019 Production Outlook

Average net daily production range of 53.0 - 57.0 MBoe/d in 2017, an 82% - 95% increase over 2016
Development capital expenditure range of $625 - $700 million (drilling, completion, infrastructure and other) with drilling and completion of $575 - $625 million and infrastructure and other of $50 - $75 million
30%+ annual production growth profile in 2018 and 2019 with cash flow neutrality beginning in 2018 at $55 oil
Expanded hedge profile covering 55% of 2017E oil production and 64% of 2017E natural gas volumes at the midpoint. Entered into basis swaps to protect Midland-Cushing differentials and began layering in 2018 oil hedges
Steve Gray, Chief Executive Officer, commented, "I am pleased to report our fourth quarter and full year results, highlighted by annual production growth of nearly 40% with 25% less in capital expenditures as compared to last year. Importantly, we continued to operate efficiently with strong cash margins and record low drill-bit finding and development costs. During the year, we reduced our activity levels in response to depressed oil prices early in the year and remained patient on M&A opportunities until we identified high quality properties that would compete for capital in our existing portfolio. With our recent entry into the Delaware Basin through our $2.4 billion acquisition of Silver Hill, we believe we have assembled one of the most focused and highest returning asset bases in the Permian Basin, solidifying our ability to achieve outstanding growth and strong operating and capital efficiency for years to come."

Mr. Gray continued, "I am also pleased to announce that our shareholders have overwhelmingly approved our issuance of RSP common stock to partially fund the SHEP II transaction which we expect to close Wednesday. We have already begun to integrate the Silver Hill assets into our inventory and are working towards achieving efficient, multi-zone horizontal development on the acquired properties. In addition, we recently acquired the underlying water disposal infrastructure supporting our operations in the Delaware. We are currently expanding these facilities and developing new facilities to support our growing operations and lower our operating costs. We are also working diligently with our various midstream partners and expect to be in position to ramp our drilling program beginning in the second half of 2017. Recent strong well results, which span five horizontal zones on the properties, highlight the attractive return profile in multiple stacked horizontal zones on our Delaware acreage position."

[dan_s]

John White at Roth Capital 2/28/2017:

Our net asset value and target price are based on proved, probable and possible reserves, financial position, and historical and expected drilling and completion results. Our price target is $64.50 and our rating is Buy.

RSPP’s actual 4Q 2016 adjusted EPS of $0.10 exceeded our estimate and the consensus, both of which were $0.05. The EPS beat was due to lower than expected lease operating expense and DD&A, partially offset by higher than expected production taxes. RSPP’s actual 4Q 2016 EBITDA of $90.5 million was slightly ahead of our estimate of $88.2 million and the consensus figure of $87.9 million. CFPS of $0.53 was slightly below our number of $0.60 and the consensus estimate of $0.59.

Actual 4Q 2016 oil and gas production was 35,793 BOE per day, again slightly ahead of our figure of 35,111 BOE per day and the consensus of 35,540 BOE per day.

Overall results were positive, in our view.

2017 Guidance: The midpoint of the 2017 oil and gas production guidance is 55,000 BOE per day, in line with our 2017 estimate of 54,106 BOE per day and the consensus figure of 55,240 BOE per day. Total 2017 capex guidance is a range of $625 million to $700 million. Our current cash flow figure for 2017 is $536 million.

RSPP's 2017 operating plan is to build momentum in 2H 2017. The capex is expected to be approximately 60%-70% in the Midland Basin and 30%-40% in the Delaware Basin. RSPP recently deployed a fourth operated rig on its Midland Basin properties and plans to operate at least four rigs on its Midland assets for the balance of the year. RSPP is currently operating one rig on its Delaware properties and will have a second operated rig working upon closing the SHEP II transaction. RSPP anticipates adding a third operated rig on its Delaware properties after enhancing infrastructure. Additionally, RSPP
anticipates adding an additional operated rig during the fourth quarter and at that time will have a total of eight operated rigs.

Proved reserves (pro forma for acquisitions) increased an impressive 78% over the year-end 2015 figure.

[dan_s]

I have updated my forecast/valuation model for RSPP. It will be posted to the EPG website later today.

My valuation remains $62.00, compared to First Call's price target of $52.85.

First Call's price target should be going up because the company's production guidance is much better than what most Wall Street firms were using.

RSPP = AGGRESSIVE GROWTH

Production will increase 80% to 90% YOY in 2017, primarily because of acquisitions and an aggressive drilling program in the Permian Basin. Recent well results in the Permian are VERY IMPRESSIVE. Production growth should accelerate into year-end.