RSP Permian (RSPP)

[dan_s]

RSPP is a pure play on the Permian Basin. It will open at approximately $33.50/share this morning.

My valuation is $46.00.

John White at Roth Capital sent me this note this morning. John's target price for RSPP is $44.00.

"We are updating estimates to include actual 3Q commodity prices. Our 3Q 2017 estimates improve slightly due to higher than expected oil and gas prices. Our previous estimates of 3Q 2017 EPS/CFPS/EBITDA of $0.13/$0.72/$134.8 million increase to $0.20/$0.79/$148.8 million."

My forecast for RSPP (dated 9/29/2017) shows Q3 EPS of $0.18 and CFPS of $0.80. < I told John a month ago that he was being to conservative on his oil price forecast, but he wanted to stay more in-line with the rest of the Wall Street Gang. < Birds of feather flock together.

From John: "Crude Oil and Natural Gas Prices: We are updating our earnings and cash flow estimates to reflect actual WTI crude oil and Henry Hub natural gas prices. WTI averaged $48.20/bbl for the quarter and 21% higher than our estimate of $40.00/bbl. The crude oil market was tighter than we expected, primarily due to increased demand and better than expected compliance by members of OPEC in accord with production quotas. Henry Hub averaged $2.95/MMBtu in 3Q 2017 and our estimate of $2.75/MMBtu was more on the mark, only 7% lower than the actual average. While some sectors of demand, such as power generation, have disappointed, growing exports, primarily exports to Mexico and exports of LNG to global markets, have helped tighten the balance in relative terms."

Here is what I really like about RSPP.
> They are on-track to grow production by 94% year-over-year and 2017 and my forecast is that production will grow by another 40% in 2018.
> They will outspend operating cash flow this year by approximately $150 million, but operating cash flows should cover 100% of their drilling & completions budget in 2018 (assuming $50 WTI and $3.00 ngas).
> Their interest expense of $20 million per quarter compares to EBITDA of close to $150 million per quarter. < This is very good for a company with production growth like this one has.

You can download our recent profile on RSPP from the EPG website. Just log on and click on the Sweet 16 tab.