AUSTIN, Texas, Dec. 19, 2018 /PRNewswire/ --
Parsley Energy, Inc. (NYSE: PE) ("Parsley," "Parsley Energy," or the "Company") today provided an initial overview of its 2019 development program and also updated expectations for certain full-year 2018 results.
Preliminary 2019 Outlook
•Consistent with the Company's commitment to capital discipline and in response to recent commodity price trends, Parsley intends to reduce development activity in 2019 while still delivering healthy production growth.
•The Company estimates that capital expenditures of $1.35-$1.55 billion will translate to total production of 124-134 MBoe per day and oil production of 80-85 MBo per day in 2019, representing year-over-year production growth of approximately 20% on both measures.
•Parsley plans to deploy 12-to-14 development rigs and three-to-four frac spreads on average in 2019, down from a recent run-rate of 16 development rigs and five frac spreads.
•Parsley's baseline capital budget assumes a $50 WTI oil price in 2019 and a relatively static service cost environment. In this context, the Company would expect to outspend cash flow from operations by less than $250 million during 2019, representing a projected year-over-year decline of more than 50%.(1) Even in a lower oil price scenario, Parsley would target a maximum outspend of $250 million, accomplished through incremental activity reductions, likely in combination with lower service and equipment costs. In a higher oil price scenario, Parsley would remain disciplined and would not plan to increase equipment levels in 2019 compared to those associated with the baseline budget.
"Our balance sheet remains strong and our commitment to capital discipline is steadfast," stated Matt Gallagher, Parsley's President. "The proposed development program is consistent with our strategic framework oriented to discipline, foresight, and stability. Despite a less favorable commodity price environment, we still intend to take a significant step toward free cash flow generation in 2019. In fact, we are committed to a material reduction in operational outspend no matter the commodity price environment. In the event of incremental and sustained oil price weakness, we have the operational flexibility to slow activity further even as our hedge book protects a portion of our cash flow; if oil prices rise, our timeline to self-funded growth would shorten. In either case, we expect that the low breakeven economics associated with our resilient Permian Basin asset base will enable us to generate healthy returns on each dollar spent."
Recent Divestitures
Parsley recently closed previously announced acreage divestitures in central Reagan County, southern Upton County, and northern Howard County, receiving combined proceeds of approximately $164 million, subject to customary post-closing adjustments. Parsley's 2019 production guidance accounts for divested volumes of approximately 1,200 Boe per day.
Fourth Quarter and Full-Year 2018 Update
Parsley expects to report 2018 capital expenditures at or near the top of the full-year guidance range of $1.65-$1.75 billion. The Company expects to place at least 40 gross horizontal wells on production during 4Q18, reflecting favorable trends in completion efficiency. Parsley expects to report net oil production and net total production at or slightly above the midpoints of full-year guidance ranges of 68.0-70.5 MBo per day and 106.0-111.0 MBoe per day, respectively, including the effect of recent divestitures. Updated full-year production guidance is based on projected 4Q18 net production of 76-78 MBo per day and 118-121 MBoe per day.
Upcoming Conference Participation
Parsley plans to participate in the 2019 Goldman Sachs Global Energy Conference in Miami, Florida on January 7-8.
About Parsley Energy, Inc.
Parsley Energy, Inc. is an independent oil and natural gas company focused on the acquisition and development of unconventional oil and natural gas reserves in the Permian Basin in West Texas. For more information, visit the Company's website at www.parsleyenergy.com.
Parsley Energy (PE) Update - Dec 20
Parsley Energy (PE) Update - Dec 20
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Parsley Energy (PE) Update - Dec 20
I have updated my forecast model for PE and I am lowering my valuation by $8 to $34/share.
In addition to lowering the oil price in 2019 (primarily in Q1 and Q2), I have lowered the multiple of operating cash flow per share that I am using to value PE. The lower multiple is because the company is slowing YOY production growth from ~40% in 2019 to ~20%, which is still very good.
In December, six ranked analysts have submitted new reports on PE to Reuters. Five of them rate it a BUY and one rates it a HOLD. Their valuations range from $25 to $36. The most recent report is from Mark Lear at Jefferies dated 12/13/2018. Mark rates PE a BUY with a price target of $32.
In addition to lowering the oil price in 2019 (primarily in Q1 and Q2), I have lowered the multiple of operating cash flow per share that I am using to value PE. The lower multiple is because the company is slowing YOY production growth from ~40% in 2019 to ~20%, which is still very good.
In December, six ranked analysts have submitted new reports on PE to Reuters. Five of them rate it a BUY and one rates it a HOLD. Their valuations range from $25 to $36. The most recent report is from Mark Lear at Jefferies dated 12/13/2018. Mark rates PE a BUY with a price target of $32.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Parsley Energy (PE) Update - Dec 20
Dan, did you notice that the 20% increase in production next year is at a much higher cost for that extra 20% than the 68% increase in production they obtained for 2018? ie They spent 1.75B in 2018 to grow production 68% (IIRC), and now are spending 1.45B for 20% increase. Still spending more on CAPEX in 2019 than cash flow for 2019 (which should have the production from the wells drilled in 2018 really hitting). When do they reach a point that they can distribute cash to shareholders? I don't see it, without $90 oil.
Looks like the Red Queen affect showing itself. If they can never distribute cash to shareholders, (dividends or buybacks), then what is the point? Why would you buy?
Won't the production from the wells drilled in 2018 be pretty well depleted by the start of 2020? etc.
Looks like the Red Queen affect showing itself. If they can never distribute cash to shareholders, (dividends or buybacks), then what is the point? Why would you buy?
Won't the production from the wells drilled in 2018 be pretty well depleted by the start of 2020? etc.
Re: Parsley Energy (PE) Update - Dec 20
PE should be generating free cash flow in 2H 2019.
Horizontal wells produce ~50% of their total recoverable reserves within the first 2 to 3 years. They reach payout quickly and should produce for 15 to 20 more years. Even at today's oil price the PV10 of a horizontal well that will recover a million barrels of oil is way more than the cost to drill and complete it.
PE's drilling program is significantly increasing the value of their leasehold. Held By Production ("HBP") leasehold is worth a lot more than undrilled leasehold that is marching toward an expiration date. Companies with a lot of HBP leasehold and proven reserves are very attractive takeover targets.
The concept that D&C expenditures are an expense is wrong. D&C expenditures increase the value of assets, which is why GAAP accounting requires them to be booked as assets.
Think of it this way. If a manufacturing company builds a new plant and fills it with equipment that will generate net income for 15-20 years, those expenditures are "capital investments". They increase "Plant & Equipment" on the Balance Sheet. Think of upstream oil & gas companies as manufacturing companies, which they are much closer to today. They acquire raw land and improve it by drilling lots of wells that will generate net income for decades. D&C expenditures are added to Fixed Assets on the Balance Sheet; there is no logical justification for expensing them.
I don't know who started the concept that capex is expense, but it is totally opposite of what good accounting rules require. BTW "Cash Flow From Operations" does not include D&C expenses, nor should it.
PS: Compare production growth in volume, not in percentage. A larger a company becomes, the harder it is to keep increasing production by the same high percentage.
Horizontal wells produce ~50% of their total recoverable reserves within the first 2 to 3 years. They reach payout quickly and should produce for 15 to 20 more years. Even at today's oil price the PV10 of a horizontal well that will recover a million barrels of oil is way more than the cost to drill and complete it.
PE's drilling program is significantly increasing the value of their leasehold. Held By Production ("HBP") leasehold is worth a lot more than undrilled leasehold that is marching toward an expiration date. Companies with a lot of HBP leasehold and proven reserves are very attractive takeover targets.
The concept that D&C expenditures are an expense is wrong. D&C expenditures increase the value of assets, which is why GAAP accounting requires them to be booked as assets.
Think of it this way. If a manufacturing company builds a new plant and fills it with equipment that will generate net income for 15-20 years, those expenditures are "capital investments". They increase "Plant & Equipment" on the Balance Sheet. Think of upstream oil & gas companies as manufacturing companies, which they are much closer to today. They acquire raw land and improve it by drilling lots of wells that will generate net income for decades. D&C expenditures are added to Fixed Assets on the Balance Sheet; there is no logical justification for expensing them.
I don't know who started the concept that capex is expense, but it is totally opposite of what good accounting rules require. BTW "Cash Flow From Operations" does not include D&C expenses, nor should it.
PS: Compare production growth in volume, not in percentage. A larger a company becomes, the harder it is to keep increasing production by the same high percentage.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Parsley Energy (PE) Update - Dec 20
Did you happen to notice the article in SA by HFIR re Parsley? He lambasts the company, calling it a terrible "overborrower," "overspender." Curious as to what you may think of his position. Thx.
Re: Parsley Energy (PE) Update - Dec 20
Be very careful with what you read on SA. The people who submit articles to SA get paid "by the click" and outrageous statements get more clicks. Don't invest based on "Click Bait".
ust read our recent profile on PE and you will see what my opinion of the company is.
Here is your homework: Calculate EBITDA and compare it to the company's debt level and interest expense. That is a good way to see if they have too much debt.
Debt / Annual EBITDA of 2X is considered VERY GOOD.
The primary thing to remember about debt is that it is not all the same. For example, your credit card debt with a very high interest rate and currently due is not the same as a home mortgage if the value of your home exceeds the mortgage debt and the interest rate is low. So...if a company's long-term debt is secured by long-term assets that are more valuable, then that debt is reasonable. "Leverage" is good if the money is used to build assets that are more valuable.
There is a concept going around that upstream companies' capital expenditures should be consider current expense. That is opposite of what we were taught in accounting schools. If Parsley Energy borrows $1Billion and uses it to develop assets worth $1.5 Billion, then it is a good thing.
ust read our recent profile on PE and you will see what my opinion of the company is.
Here is your homework: Calculate EBITDA and compare it to the company's debt level and interest expense. That is a good way to see if they have too much debt.
Debt / Annual EBITDA of 2X is considered VERY GOOD.
The primary thing to remember about debt is that it is not all the same. For example, your credit card debt with a very high interest rate and currently due is not the same as a home mortgage if the value of your home exceeds the mortgage debt and the interest rate is low. So...if a company's long-term debt is secured by long-term assets that are more valuable, then that debt is reasonable. "Leverage" is good if the money is used to build assets that are more valuable.
There is a concept going around that upstream companies' capital expenditures should be consider current expense. That is opposite of what we were taught in accounting schools. If Parsley Energy borrows $1Billion and uses it to develop assets worth $1.5 Billion, then it is a good thing.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group