Parsley Energy (PE) Update - Mar 20

[dan_s]

I am working on Parsley's update profile. It is a bit more complicated by the merger with Jagged Peak, but I will finish it today and send it out in the morning.

On March 18th, Parsley said this.

Supplementary Update for 2020 Outlook

Parsley is reiterating its baseline capital budget assumption of $30-35 WTI oil price for the remainder of 2020. In this context, Parsley is reducing its 2020 capital budget to less than $1.0 billion, representing a reduction of more than 40% at the midpoint to the Company's previous $1.6-$1.8 billion budget.

Consistent with the Company's commitment to free cash flow generation and in response to recent commodity price trends, Parsley plans to significantly reduce development activity in 2020. During January and February, Parsley operated 15 development rigs and five frac spreads on average. On March 9, 2020, Parsley announced that it had recently dropped to three frac spreads and had approved plans to drop to 12 rigs as soon as practicable. Over the next several weeks, Parsley plans to further reduce its baseline activity pace to four-to-six rigs and two-to-three frac spreads.

Considering the challenging environment, all of Parsley's executive officers have elected to reduce their respective annual cash compensation by at least 50% when compared to 2019.

In the context of $30-$35 WTI oil prices for the remainder of the year, Parsley is now targeting at least $225 million of free cash flow, which is an increase of nearly $150 million from the Company's preliminary target announced on March 9, 2020. Parsley anticipates this enhanced free cash flow will be accomplished through the aforementioned activity reductions, lower service and equipment costs, and incremental downside protection built into the Company's restructured hedge positions. In a lower oil price environment, Parsley will adjust as needed to preserve its balance sheet.

Parsley's initial 2020 guidance ranges were based on our previously announced development plan, and as such, do not reflect our revised plan and reduced development activity. Parsley will provide more detail on our revised 2020 guidance ranges when we release the company's first quarter 2020 financial results. < For my forecast/valuation model I am assuming flat production from what both companies reported for Q4 2019; approximately 182,000 Boepd for 2020 and a 10% increase in 2021.

Summary Comment and Outlook

"This is not a time for indecision or half measures," commented Matt Gallagher, Parsley's President and CEO. "Parsley has acted swiftly and aggressively to protect its balance sheet and dividend as well as preserve long-term shareholder value in a $30-$35 WTI oil price environment. We are committed to allocating capital based on prevailing market conditions. These activity levels provide for a sustaining and healthy operating model at these prices should they hold long term. Despite having over $1 billion in hedge settlements if oil drops to the low $20s through the end of 2021, we will continue to evaluate unhedged returns when prescribing activity levels. Our work is far from done and our team will continue to be adaptive and responsive in these challenging times."

Hedging Update

In this lower commodity price environment, Parsley continues to proactively manage its hedge position. The Company has restructured portions of its 2020 hedge position and increased downside protection by adding supplemental hedge positions for 2020 and 2021. Additionally, Parsley's hedge restructuring since March 4, 2020 has brought in $41 million of cash as well as lowered future deferred premiums by $47 million.

[dan_s]

Assuming WTI bounce back to $40/bbl by the end of this year, Parsley is definitely one to consider.

Thanks to some very good hedges (valued at more than $1 Billion cash today), the Company is on-track to generate $150 million in free cash flow from operations.

Just to be clear, few if any of the upstream companies in the world will survive if WTI stays in the $25/bbl range thru 2021. We have harvested the cheap oil long ago. There are few projects in the world that work even at $40/bbl oil.

BTW there are a lot of Saudi princes that are pissed off at MBS. This price war will cost the Royal Family many $Billions and once the FEAR of COVID-19 fades, there may be mobs in the street of Riyadh to deal with.

What's stupid is that U.S. oil production was going down because of the virus fear. MBS and Putin didn't need a price war to gain market share.