Sweet 16 Update - March 31
Posted: Sat Mar 31, 2018 9:37 am
The Sweet 16 was up 2.3% the week ending March 29, but finished the first quarter down 5.09% YTD. This compares to the S&P 500 Index that finished the first quarter down 1.22% YTD.
As I discuss at the end of this week's podcast, four solid companies (XEC, DVN, GPOR and NFX) that are down more than 22.5% YTD. If I remove them the "Sweet 12" would be up YTD.
I've double checked my forecast/valuation models for each one and I can't find any reason for such a large decline other than that they all produce a lot of natural gas. GPOR is the only one that gets most of its revenues from natural gas sales. Gulfport is one of the most profitable companies in the Sweet 16.
Gulfport Energy (GPOR)
2017A EPS/CFPS = $2.38 / $3.45 < Note that $1.03 EPS in 2017 came from their mark-to-market (non-cash) adjustment on hedges, so actual EPS were more like $1.35 (still good).
2018E EPS/CFPS = $1.29 / $4.07
2019E EPS/CFPS = $1.59 / $4.49
* My forecasts above for 2018 and 2019 are very close to what First Call is now forecasting.
XEC, DVN and NFX all get most of their revenues from the sale of liquids (oil and NGLs). My forecasts are based on liquids prices that are below today's prices.
Last week's gain for the Sweet 16 is ~90% from the spike in RSPP, which will merge with CXO in the 3rd quarter.
Increased M&A activity marks the end of oil price cycles because the “Big Fish” take the opportunity (and they have the capital) to scoop up the “Little Fish”. RSP Permian is not really a Little Fish, but it is a great fit for Concho.
On March 3, 2018 I published a profile on RSP Permian with my estimated “Fair Value” of $52.00/share. Based on Concho’s share price the day before the merger was announce, they are buying it for approximately $49.00/share, so I think they got it at a fair price.
I’m sure that multiple reports will be published that say Concho overpaid, but we won’t really know for several more years. Most of RSP’s leasehold fits in nicely with what Concho had and it gives them another 1,500 low-risk high-return horizontal drilling locations in the Permian Basin. Plus, RSP is currently producing approximately 47,000 barrels of crude oil, 11,000 barrels of NGLs and 54,000 Mcf of natural gas per day (67,000 BOE per day), which generate over $270 million per quarter gross revenues.
“If (the merger is) successful, the acquisition adds approximately 92,000 net acres to Concho’s already vast Permian Basin portfolio (45,000 net Delaware Basin acres and 47,000 net Midland Basin acres). We estimate the deal value at ~$75,000 per net undeveloped acre; a significant premium to recent public deals in the area (~$35-45K on average). It could generate higher valuations for other operators in the basin and help close the gap between recent private and public deal valuations.” – Raymond James, March 29, 2018 Energy Industry Brief
So the question that I’m getting from EPG members is “Which upstream companies are the next most likely targets?”
Here is a list of the small and mid-cap companies that I follow closely along with my “Fair Value Estimate” for each of them. This does not mean any of them will be acquired and some of them may be buyers. I will say that the companies with large blocks of contiguous leasehold, most of which is held by production, are the most attractive takeover targets. I list them in alphabetical order, without any indication as to which ones I believe have the best chance of being acquired. Frankly, no one really knows, but I’m sure that most of these companies are on the “radar screens” of large-caps with deep pockets.
• Callon Petroleum (CPE) / $17.00
• Diamondback Energy (FANG) / $160.00
• Earthstone Energy (ESTE) / $17.50
• Laredo Petroleum (LPI) / $16.00
• Matador Resources (MTDR) / $40.00
• Parsley Energy (PE) / $40.00
• Ring Energy (REI) / $22.50
• SM Energy (SM) / $33.00
Updated profiles and forecast/valuation models for all eight of these companies can be found on the EPG website.
As I discuss at the end of this week's podcast, four solid companies (XEC, DVN, GPOR and NFX) that are down more than 22.5% YTD. If I remove them the "Sweet 12" would be up YTD.
I've double checked my forecast/valuation models for each one and I can't find any reason for such a large decline other than that they all produce a lot of natural gas. GPOR is the only one that gets most of its revenues from natural gas sales. Gulfport is one of the most profitable companies in the Sweet 16.
Gulfport Energy (GPOR)
2017A EPS/CFPS = $2.38 / $3.45 < Note that $1.03 EPS in 2017 came from their mark-to-market (non-cash) adjustment on hedges, so actual EPS were more like $1.35 (still good).
2018E EPS/CFPS = $1.29 / $4.07
2019E EPS/CFPS = $1.59 / $4.49
* My forecasts above for 2018 and 2019 are very close to what First Call is now forecasting.
XEC, DVN and NFX all get most of their revenues from the sale of liquids (oil and NGLs). My forecasts are based on liquids prices that are below today's prices.
Last week's gain for the Sweet 16 is ~90% from the spike in RSPP, which will merge with CXO in the 3rd quarter.
Increased M&A activity marks the end of oil price cycles because the “Big Fish” take the opportunity (and they have the capital) to scoop up the “Little Fish”. RSP Permian is not really a Little Fish, but it is a great fit for Concho.
On March 3, 2018 I published a profile on RSP Permian with my estimated “Fair Value” of $52.00/share. Based on Concho’s share price the day before the merger was announce, they are buying it for approximately $49.00/share, so I think they got it at a fair price.
I’m sure that multiple reports will be published that say Concho overpaid, but we won’t really know for several more years. Most of RSP’s leasehold fits in nicely with what Concho had and it gives them another 1,500 low-risk high-return horizontal drilling locations in the Permian Basin. Plus, RSP is currently producing approximately 47,000 barrels of crude oil, 11,000 barrels of NGLs and 54,000 Mcf of natural gas per day (67,000 BOE per day), which generate over $270 million per quarter gross revenues.
“If (the merger is) successful, the acquisition adds approximately 92,000 net acres to Concho’s already vast Permian Basin portfolio (45,000 net Delaware Basin acres and 47,000 net Midland Basin acres). We estimate the deal value at ~$75,000 per net undeveloped acre; a significant premium to recent public deals in the area (~$35-45K on average). It could generate higher valuations for other operators in the basin and help close the gap between recent private and public deal valuations.” – Raymond James, March 29, 2018 Energy Industry Brief
So the question that I’m getting from EPG members is “Which upstream companies are the next most likely targets?”
Here is a list of the small and mid-cap companies that I follow closely along with my “Fair Value Estimate” for each of them. This does not mean any of them will be acquired and some of them may be buyers. I will say that the companies with large blocks of contiguous leasehold, most of which is held by production, are the most attractive takeover targets. I list them in alphabetical order, without any indication as to which ones I believe have the best chance of being acquired. Frankly, no one really knows, but I’m sure that most of these companies are on the “radar screens” of large-caps with deep pockets.
• Callon Petroleum (CPE) / $17.00
• Diamondback Energy (FANG) / $160.00
• Earthstone Energy (ESTE) / $17.50
• Laredo Petroleum (LPI) / $16.00
• Matador Resources (MTDR) / $40.00
• Parsley Energy (PE) / $40.00
• Ring Energy (REI) / $22.50
• SM Energy (SM) / $33.00
Updated profiles and forecast/valuation models for all eight of these companies can be found on the EPG website.