RRC Update 3-22-2018

[dan_s]

RRC Update from TPH

NAV falls -20% to $28/shr on Terryville update, shift to maintenance mode longer term

Sector: NAm E&P | Ticker: RRC | Recommendation: HOLD | Target: $28.00 | Close: $15.13

We've updated our model to strip out growth beyond 2022, in-line with recent updates for Appalachian peers, as we see limited line of sight to takeaway capacity additions longer term given the lack of producer interest in committing to greenfield projects. We've also updated and consolidated our Terryville type curves to match the company's new blended curve of 1.6Bcfe / 1,000', while shifting to flat activity for the foreseeable future, in-line with guidance. All-in, our 3P NAV falls -20% to $28/shr at $54 / $2.84 LT ($39/shr if +50c LT) with the Terryville update accounting for ~70% of the change. Despite hefty upside from current levels, we remain sidelined as leverage remains elevated at TPHe 2.7x by YE'20 at strip, implying that FCF generated through the 5-year plan is unlikely to be returned to shareholders in our view. We continue to look for asset sales in the near term to accelerate deleveraging efforts with NE PA / MidCon (TPHe >$500MM) and longer dated SW PA inventory on the table. However, we believe a more impactful strategy would be to monetize Terryville (TPHe $1.2-1.5B) to completely reset the balance sheet and return the company to a pure-play Marcellus operator, both of which should help reignite investor interest in the name.