Parsley Energy (PE) Q2 Results

[dan_s]

Parsley reports another solid quarter of growth. On a BOE basis, production exceeded my forecast but most of the growth was gas and NGLs. - Dan

AUSTIN, Texas, Aug. 2, 2017 /PRNewswire/ -- Parsley Energy, Inc. (PE) ("Parsley," "Parsley Energy," or the "Company") today announced financial and operating results for the quarter ended June 30, 2017. The Company has posted to its website a presentation that supplements the information in this release.

Second Quarter 2017 Highlights

> Net production averaged 64.7 MBoe per day, up 18% versus 1Q17 and 81% year-over-year. Daily net oil production increased 14% versus 1Q17 and 82% year-over-year.
> The Company is increasing full-year 2017 net production guidance from 65-71 MBoe per day to 67-73 MBoe per day and also increasing estimated 4Q17 net production from 78-88 MBoe per day to 80-90 MBoe per day. At the midpoints, the updated ranges translate to estimated production growth of 83% in 2017 versus 2016 and 88% in 4Q17 versus 4Q16.
> Parsley reiterates estimated full-year 2017 capital expenditures of $1.0-$1.15 billion.

The Company has executed several acreage trades that enhance the development potential of its Midland Basin footprint. Net of acreage traded away, Parsley added more than 500,000 net lateral feet to the Company's horizontal drilling inventory through trades executed since its last quarterly update in May. Including this footage, Parsley has added approximately 1.4 million net lateral feet through acreage trades since announcing the acquisition of Midland Basin assets from Double Eagle Permian, LLC and certain of its affiliates in February, while consolidating key development areas.

Parsley completed several successful delineation projects in 2Q17:
Early results from a well completed with a compressed stage completion design show material outperformance on limited incremental cost compared to the Company's standard completion design.

As previously disclosed, Parsley amended its revolving credit agreement on April 28, 2017, thereby increasing its borrowing base by 60% to $1.4 billion, with a Company-elected commitment amount of $1.0 billion. As of the end of 2Q17, liquidity stands at $1.5 billion, including $503 million of cash on hand.

"Parsley Energy continues to generate value from multiple sources, registering several noteworthy accomplishments in the second quarter of 2017," said Bryan Sheffield, Parsley's Chairman and CEO. "Strong production growth in 2Q17 was accompanied by significant delineation success, promising new well designs, and accretive acreage trades, all of which increase the value of our premier acreage position. With a strong balance sheet and abundant operational flexibility, Parsley is poised to deliver differentiated results across a range of commodity price scenarios."

[dan_s]

From the press release: "The Company experienced a slight shift in production mix in 2Q17, with oil as a percentage of total production down from 69% to 67%. The shift in production composition was a function of contributions from recently acquired vertical production and a seasonal increase in plant efficiencies that boosted the recovery of NGLs. Delays on the eight-well Wolfcamp B downspacing project also limited the contribution of high oil-cut flush production in the second quarter, adversely impacting both absolute oil volumes and overall production mix. More generally, oil recoveries from Parsley's portfolio of horizontal wells continue to track in line with expectations, even as gas and NGL volumes broadly exceed expectations. Notably, liquids as a percentage of overall production tied a Company-record in the second quarter at 85%. In light of these considerations as well as increasing contribution from Wolfcamp C wells, Parsley is reducing its estimated full-year 2017 oil percentage to 67-70%, a range that the Company believes is likely to be appropriate through 2018, as well."

2nd quarter production was 64,720 Boe per day (66.5% crude oil, 18.2% NGLs and 15.3% natural gas)

Parsley should exit this year with production near 95,000 Boe per day.

Their current drilling program should increase production to approximately 120,000 Boepd day next year, with an exit rate near 150,000 Boepd.

An upstream company with growth like this should trade at a very high multiple.

[dan_s]

The market's reaction to what looks like a very good quarterly report may have something to do with the changing gas to oil ratio ("GOR"). I have seen some articles recently that this is a trend in the Permian Basin. Listen to the PXD conference call and hear the analysts making a big deal out of it.

I have updated my forecast model for Parsley Energy and it will be posted to the EPG website this evening.

My valuation increases by $2/share to $46.00. This compares to First Call's price target of $39.39.

Take a hard look at the RED BOX on the forecast model and you will see why this one has a lot of upside.

If the price of oil can break through resistance at $50, this stock will go "zoom, zoom, zoom ..."