Permian Resources (PR) Valuation Update - Aug 7

[dan_s]

I spent several hours this afternoon updating my forecast model for Permian Resource. My updated valuation is $23.50, but if their 2H 2024 results match up with my model assumption there is a lot more upside.

The Company's Q2 results beat my forecast, but production was a bit more "gassy" than I expected. We all know that Permian Basin natural gas prices suck in West Texas, especially in the Delaware Basin. There is just not enough gas pipeline takeaway capacity, but help is on the way.

The Matterhorn Express pipeline should be on line in a few months, with 2 Bcfpd of capacity. Another pipeline that will take gas from West Texas into Mexico should be finished mid-2025.

~98% of PR's revenues were from liquid sales in Q2. Any improvement in their realized natural gas prices will be a welcome revenue boost, but my forecast assumes that realized ngas prices will average under $0.65/mcf during 2H 2024.

PR is going to pay "base + variable" dividends. The next dividend of $0.21/Qtr is an annualized dividend yield of ~6%, which is not bad for an Aggressive Growth company.

If the Delaware Basin acquisition from OXY does close in September, PR's Q4 production should be over 345,000 Boepd (46% oil, 29.5% ngas and 24.5% NGLs). PR's realized NGL prices in Q2 of $22.51/bbl actually beat my forecast.

PR remains one of my Top Picks the Sweet 16. There is nothing that justifies this stock trading at 3X operating cash flow per share.

[dan_s]

Since PR announced Q2 results, eight highly respected energy sector analysts have submitted updated price targets to TipRanks of $17 to $23. All eight of them rate it a BUY.

My updated forecast model for PR will be posted to the EPG website late this afternoon. We will publish an updated profile on it next week.