Stifel Updates - May 29

[dan_s]

Michael S. Scialla is the top upstream oil & gas sector analyst at Stifel

Oil & Gas Exploration and Production - 1Q19 E&P Earnings Review: Stocks Historically Cheap If Oil Price Holds by Michael S. Scialla 5-29-2019

"We believe E&P valuations, which in many cases approximate proved producing reserve values, are ignoring E&P capital discipline and free cash flow (FCF) generation; a balanced to slightly under-supplied oil market that is susceptible to supply disruptions; and the high likelihood for further M&A activity within the sector. A lackluster 1Q19 earnings season did little to quell investor skepticism while recent inventory builds and trade tension have weighed further on the sector. After lagging oil prices YTD, E&P stocks should outperform the commodity over 2H19, in our view, if companies deliver on their plans to generate return driven growth via internally generated cash flow and oil prices stabilize. CXO, PE, PDCE, PXD, WPX, and XEC are especially well positioned."

I know that it is difficult to ignore all of the "noise", but the global oil market will be getting much tighter between Memorial Day and Labor Day. The big jump in oil demand in Q2 and Q3 that is shown at the top of page two of the EPG newsletter happens between those two holidays.

Mineral Interest-MLPs - Updating Mineral Models for Crude Prices; Currently Favor
Crude Weighted Names for New Capital - Timothy D. Howard - We are updating our
mineral interest models for the recent crude oil price decline with spot prices falling
7% over the past 30 days (mainly the last week), while the average next twelve month
futures price declined 6%. As a result, we are upgrading Falcon Minerals (FLMN)
to Buy from Hold following recent underperformance despite a couple positive data
points. We are also lowering Kimbell Royalty Partners (KRP) to Hold which is a result
of our numbers moving mdoestly lower and recent outperformance. We are also
adjusting our target prices for BSM to $19.00 from $20.00 and VNOM to $35.00 from
$37.00. Our favorite name is currently VNOM given our estimated upside and potential
catalyst from a dropdown. Next, we view Falcon as increasingly interesting given
its underperformance and positive data points which include additional permitting at
Hooks Ranch and higher rigs across its Eagle Ford counties.

Chaparral Energy, Inc. (CHAP, $3.63, Buy; Target $19.00) - Expect positive stock
response based on prolific Merge well results and Q219 guidance - Derrick Whitfield
- After the close, Chaparral released longer-dated results from the company's 11-
well Foraker co-development test in the Merge. The nine Meramec wells averaged
1,491 boepd (50% oil, 4,934' lateral) or +150% above Stifel's type curve. The two
Woodford wells averaged 754 boepd (39% oil, 4,949' lateral) or 36% above Stifel's
type curve. Additionally, the company released longer-dated results from the three well
Denai spacing test completed in Q318. The three wells achieved and average
IP90 of 1,032 boepd (44% oil) or 100% above Stifel's type curve. Management noted
the wells are 45% above its oil type curve after 260 days. Finally, Chaparral highlighted
that it expects Q219 production will exceed the high end of the previously announced
guidance range of 26.0-27.5 mboepd as the company is currently producing at 28
mboepd. Net-net, we beleive management is making a strong case for a stock re-rate
based on its peer leading execution.