Truist Financial by Neal Dingmann
Permian Resources Corporation (PR, $12.89, Buy) - Highly
Accretive Deal Sets PR Up to Potentially Be Acquired in Future -
We believe today’s Permian Resources acquisition will ultimately
be one of the most accretive transactions in several quarters
based on agreed price, cost savings, and future operating
efficiencies among other things. We also believe the combination
sets PR up as a highly attractive future target given its strong
proforma assets and operations. We have increased our PT to
$18 from $16 as we anticipate future PR guidance to include an
efficient 2024 plan with the pro-forma company running less D&C
activity than the current 11 rigs/4-5 frac spread while producing
the same or more than current combined production.
More from Neal > PR/ESTE Merger Best Transition of the Year - Permian
Resources (PR, Buy) announced the all-stock acquisition of
Earthstone (ESTE, Buy) for ~$4.5B or a 15% premium after
which PR will own 73% with ESTE retaining 27%. We believe
the ~2.8x EV/EBITDA or ~$32k/flowing boe deal to be one of the
most accretive seen in the past several quarters and sets up PR
as one of the strongest Permian companies. In our view, there
appears to be numerous synergies with the combination and the
proforma acreage will be some of the best in the entire Permian.
The major pushback will be the overhang due to the ownership of
49%/48% by each of the companies' largest-shareholders. < This issue came up on the CC yesterday and PR management said they would buy shares of large shareholders that want to sell down their interest.
Susquehanna: Permian Resources (PR) announced a $4.5B acquisition of Earthstone Energy (ESTE) in an all-stock transaction, which values ESTE at ~3.2x 2024 EBITDA. The deal increases PR's production profile by ~80% and is accretive across all metrics. We are currently forecasting an 11% increase to FCF/sh in 2024. We maintain our Neutral rating and raise our price target by $3 to $14.
PR + ESTE Merger: Analysts Updates - Aug 22
PR + ESTE Merger: Analysts Updates - Aug 22
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: PR + ESTE Merger: Analysts Updates - Aug 22
Detailed Report from Neal Dingmann at Truist Financial.
Permian Resources Corporation (PR)
Highly Accretive Deal Sets PR Up to Potentially Be Acquired in Future
We believe today’s Permian Resources acquisition will ultimately be one of the most
accretive transactions in several quarters based on agreed price, cost savings, and future
operating efficiencies among other things. We also believe the combination sets PR up as
a highly attractive future target given its strong proforma assets and operations. We have
increased our PT to $18 from $16 as we anticipate future PR guidance to include an efficient
2024 plan with the pro-forma company running less D&C activity than the current 11 rigs/4-5
frac spread while producing the same or more than current combined production.
Further, there is potential for non-core proforma asset sales such as some/all of the
Midland position, which would expedite debt repayment.
Clear Path to Synergies
We believe PR can begin to generate an annual run-rate of roughly $175mm of synergies
in ’24, with $30mm of immediate G&A reductions. Within LOE costs, we believe there
are significant savings to be generated stemming from faster, more efficient drilling and
completion times that will lead to faster cycle times, which is key for incremental free cash
flow. We also think the company will benefit from economies of scale in several parts of
the business, with one notable area stemming from the optimization of water disposal. On
the G&A side, PR will eliminate some executive positions and some overlapping technical
support positions but believe there will still be a material amount of ESTE operational
employees remaining in the proforma company. Lastly, on the financing side, we believe
there is an opportunity for PR to generate $30mm of synergies resulting from refinancing
ESTE's long-term debt. To that end, we highlight leverage post-deal closing should remain
at less than 1x, leaving the company with ample dry powder for buybacks or additional
acquisitions. With a strong balance sheet coupled with incremental cash flow generation, we
believe PR’s capital allocation of distributing at least 50% of FCF post base dividend through
variable dividends and share repurchases will continue to satisfy investors (assuming solid
participation with any private equity share sales).
Spotlight on the Delaware Basin Assets
We believe PR’s Midland assets will rank lower on the priority list post deal close with
only 10% of 2024 capital being allocated toward the basin. Specifically, we believe the
company will utilize only one rig in the basin and shift the other rig towards the Delaware
basin, resulting in production declines in Midland for the foreseeable future. As a result,
we would not be surprised if PR sells the Midland assets and refocuses the capital in the
Delaware Basin. The best practice will continue to be to allocate most capital toward the
highest returning assets in the Delaware basin, particularly within New Mexico as PR has
done so efficiently since being public. We would expect total company production growth to
be in the range of 0-10% in 2024 (likely on the higher side) with the variability depending
on several factors including service cost deflation, commodity price trends, and additional
potential acquisitions. < MY TAKE: If PR runs 11 operated drilling rigs (and they have some of the best drilling rigs that are working in the Delaware Basin) the Company's YOY production growth rate should be at or above 10%. PR holds some of the highest quality leasehold in New Mexico and they won't sit on it at today's oil prices.
Permian Resources Corporation (PR)
Highly Accretive Deal Sets PR Up to Potentially Be Acquired in Future
We believe today’s Permian Resources acquisition will ultimately be one of the most
accretive transactions in several quarters based on agreed price, cost savings, and future
operating efficiencies among other things. We also believe the combination sets PR up as
a highly attractive future target given its strong proforma assets and operations. We have
increased our PT to $18 from $16 as we anticipate future PR guidance to include an efficient
2024 plan with the pro-forma company running less D&C activity than the current 11 rigs/4-5
frac spread while producing the same or more than current combined production.
Further, there is potential for non-core proforma asset sales such as some/all of the
Midland position, which would expedite debt repayment.
Clear Path to Synergies
We believe PR can begin to generate an annual run-rate of roughly $175mm of synergies
in ’24, with $30mm of immediate G&A reductions. Within LOE costs, we believe there
are significant savings to be generated stemming from faster, more efficient drilling and
completion times that will lead to faster cycle times, which is key for incremental free cash
flow. We also think the company will benefit from economies of scale in several parts of
the business, with one notable area stemming from the optimization of water disposal. On
the G&A side, PR will eliminate some executive positions and some overlapping technical
support positions but believe there will still be a material amount of ESTE operational
employees remaining in the proforma company. Lastly, on the financing side, we believe
there is an opportunity for PR to generate $30mm of synergies resulting from refinancing
ESTE's long-term debt. To that end, we highlight leverage post-deal closing should remain
at less than 1x, leaving the company with ample dry powder for buybacks or additional
acquisitions. With a strong balance sheet coupled with incremental cash flow generation, we
believe PR’s capital allocation of distributing at least 50% of FCF post base dividend through
variable dividends and share repurchases will continue to satisfy investors (assuming solid
participation with any private equity share sales).
Spotlight on the Delaware Basin Assets
We believe PR’s Midland assets will rank lower on the priority list post deal close with
only 10% of 2024 capital being allocated toward the basin. Specifically, we believe the
company will utilize only one rig in the basin and shift the other rig towards the Delaware
basin, resulting in production declines in Midland for the foreseeable future. As a result,
we would not be surprised if PR sells the Midland assets and refocuses the capital in the
Delaware Basin. The best practice will continue to be to allocate most capital toward the
highest returning assets in the Delaware basin, particularly within New Mexico as PR has
done so efficiently since being public. We would expect total company production growth to
be in the range of 0-10% in 2024 (likely on the higher side) with the variability depending
on several factors including service cost deflation, commodity price trends, and additional
potential acquisitions. < MY TAKE: If PR runs 11 operated drilling rigs (and they have some of the best drilling rigs that are working in the Delaware Basin) the Company's YOY production growth rate should be at or above 10%. PR holds some of the highest quality leasehold in New Mexico and they won't sit on it at today's oil prices.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: PR + ESTE Merger: Analysts Updates - Aug 22
IMO Neal Dingmann is one of the best energy sector analysts. TipRanks gives Neal their highest rating of 5-Stars.
If you want to see Neal Dingmann's Update on PR, which contains a detailed Net Income & Operating Cash Flow Forecast, send me an e-mail and I'll forward it to you. dmsteffens@comcast.net.
Truist Financial: Updating Estimates and Raising PT To $18 From $16
We have updated our estimates to account for the acquisition and our integrated model. We view the accretive deal as a smart way
to position the proforma company as one of the strongest Permian companies under coverage. While the major pushback will be the
overhang due to the private equity ownership in the combined entity, we expect the company to participate as the sellers exit their positions,
moderating any impact.
Investment Thesis
Permian Resources continues to have one of the strongest operational teams amongst mid-cap E&Ps in our opinion and the company
is tasked with striking a difficult balance between maintaining/slightly growing production and meaningfully reducing total debt levels.
We think the company has done a notable job improving operating efficiencies, reducing costs and, with the assistance of a lower
capital program over the last few years, bringing down its overall corporate decline rate. Going forward, we anticipate PR has the
potential to outperform our estimates, in large part due to its strong shareholder return program and efficient operations. We rate the
shares Buy.
Our $18 price target is derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX
multiple of 4.0x (3.8x peer group average) applied to our 2024E EBITDAX estimate of $4,370MM (consensus of $2,341MM) and the
second being a FCF/EV Yield assumption of 13.0x
-------------------------------------
Neal's Proforma forecast is based on almost flat YOY production growth until Q4, but his forecast operating expenses are less than what I am using. It looks like his 2024 oil price is $80/bbl.
Neal's EBITDAX forecast of $4,370 million compares to my forecast of $4,521 million, primarily due to my realized oil price being $5/bbl higher.
If you want to see Neal Dingmann's Update on PR, which contains a detailed Net Income & Operating Cash Flow Forecast, send me an e-mail and I'll forward it to you. dmsteffens@comcast.net.
Truist Financial: Updating Estimates and Raising PT To $18 From $16
We have updated our estimates to account for the acquisition and our integrated model. We view the accretive deal as a smart way
to position the proforma company as one of the strongest Permian companies under coverage. While the major pushback will be the
overhang due to the private equity ownership in the combined entity, we expect the company to participate as the sellers exit their positions,
moderating any impact.
Investment Thesis
Permian Resources continues to have one of the strongest operational teams amongst mid-cap E&Ps in our opinion and the company
is tasked with striking a difficult balance between maintaining/slightly growing production and meaningfully reducing total debt levels.
We think the company has done a notable job improving operating efficiencies, reducing costs and, with the assistance of a lower
capital program over the last few years, bringing down its overall corporate decline rate. Going forward, we anticipate PR has the
potential to outperform our estimates, in large part due to its strong shareholder return program and efficient operations. We rate the
shares Buy.
Our $18 price target is derived from two equally weighted methodologies, with the first being our ’24 EV/EBITDAX
multiple of 4.0x (3.8x peer group average) applied to our 2024E EBITDAX estimate of $4,370MM (consensus of $2,341MM) and the
second being a FCF/EV Yield assumption of 13.0x
-------------------------------------
Neal's Proforma forecast is based on almost flat YOY production growth until Q4, but his forecast operating expenses are less than what I am using. It looks like his 2024 oil price is $80/bbl.
Neal's EBITDAX forecast of $4,370 million compares to my forecast of $4,521 million, primarily due to my realized oil price being $5/bbl higher.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: PR + ESTE Merger: Analysts Updates - Aug 22
From TipRanks:
> Mizuho Securities analyst Nitin Kumar raised the price target on Permian Resources
Corp (NASDAQ: PR) to $17.00 (from $16.00) while maintaining a Buy rating.
> In a report released today, Phillip Jungwirth from BMO Capital maintained a Hold
rating on Permian Resources (PR), with a price target of $15.00.
> Siebert Williams Shank & Co analyst Gabriele Sorbara reiterated a Buy rating on
Permian Resources (PR) today and set a price target of $18.00.
> Mizuho Securities analyst Nitin Kumar raised the price target on Permian Resources
Corp (NASDAQ: PR) to $17.00 (from $16.00) while maintaining a Buy rating.
> In a report released today, Phillip Jungwirth from BMO Capital maintained a Hold
rating on Permian Resources (PR), with a price target of $15.00.
> Siebert Williams Shank & Co analyst Gabriele Sorbara reiterated a Buy rating on
Permian Resources (PR) today and set a price target of $18.00.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group