Permian Resources (PR) Valuation Update - Nov 8

[dan_s]

I have updated my forecast/valuation model for Permian Resources and it will be posted to the EPG website this evening.

PR closed today at $13.19. My current valuation increases by $2 to $21/share.

The merger of Earthstone Resources into Permian Resources closed on November 1st. Since Earthstone was also in the Sweet 16 it was relatively easy for me to merge the two companies' forecast models. There will be some significant synergies / cost savings in 2024; primarily lower completed well costs and lower lease operating expenses per boe since PR already had a significant team operating in the Delaware Basin.

In my opinion, PR is now a "Screaming Takeover Target" and I believe an acceptable cash offer would be much higher than my $21 valuation.

Two very good analysts have updated their price targets since both companies have now reported Q3 results.
This morning (11/8)
> Gabriele Sorbara at Siebert Williams Shank & Co (rated 5-Star by TipRanks) rates PR a BUY with a price target of $20.00.
> Gabriel Daoud at TD Cowen rates PR a BUY with a price target of $17.00.

PR won't provide detailed guidance for 2024 until February, but I already had 2024 production forecasts for both companies, so I can add them together. I sure don't expect PR to slow down their aggressive drilling program.

It will take the Wall Street Gang a few months to figure this one out, but I know that RBC Capital and Truist Financial really like this merger. They both rate it a BUY.

MY WISH: A merger of FANG and PR would create one hell of a company.

[aja57]

"MY WISH: A merger of FANG and PR would create one hell of a company."

If XOM and PXD can survive the FTC, then this would be a slam dunk. ChuckGeb, stop sandbagging us. What's the rumor from your source?

[ChuckGeb]

Not sandbagging, just heard to expect more good news. I pay attention to the signals but stay within the lines, and I can tell you I have placed no Paul Pelosi trades. Based solely on my read of the tea leaves.

That said and in that it is clear that getting bigger expands the trading multiple, I personally think PR acq by FANG makes sense. Baytex’s CEO yesterday suggested that the industry becomes more efficient and profitable by shrinking the players in the major basins. And honestly my beliefs are more influenced by recent commentary from Dan and subscriber research piece of Paul Sankey on the probable consolidation movement.

It is appears that the m & a trend seems to be mergers vs cash acquisitions with small premiums for the acquired stocks vs some nice pop for a cash deal. The expectation of the acquired’s shareholders is to realize a higher multiple on their stock than available as a standalone. Of course it appears that they are also influenced by the motivation of management to retire and/or cash out their lucrative incentive units that typically vest on change of control. It doesn’t appear that PR’s young management is retirement minded and I haven’t reviewed their comp arrangements.

Sorry if this response disappoints.

[dan_s]

To be clear: I don't expect a FANG + PR merger. I think both of them are potential BUYERS, not SELLERS.

FANG is more focused on the Midland Basin and PR is now a "Big Dog" in the Delaware Basin. FANG might be interested in a deal to acquire CPE or VTLE because FANG's cost of capital is much lower.

These are interesting times.