Parsley Energy (PE) Update - Oct 6
Posted: Tue Oct 06, 2020 6:33 pm
Barclays published a new report on PE. The rate it as "Overweight" with a price target of $15.00.
De-risked Q3. On September 9th PE released an updated presentation ahead of our Energy-Power conference announcing lower operating costs, lower well cost targets and increased 2020 FCF, and reinstating 2020 production and activity guidance. Also, PE provided Q3 oil production guidance of 109.5-111.5 MBO/d and reiterated that, in addition to the 2 rigs + 2 frac crews activated in July, management expects to add up to 2 more rigs in October. Given the timing of the frac crews, we anticipate that Q3 well turn in lines are weighted toward the back half of the quarter.
However, since management had over 2/3rds of the quarter in the bag when it provided Q3 production guidance, PE's quarter is relatively de-risked, in our view. Our model suggests that PE could be at the high end of the oil guidance range (109.5-111.5 MBO/d) based on 22 gross operated wells to sales, and Bloomberg consensus is 111.2 MBO/d. On capex, we forecast $95mm for Q3 (vs. consensus of $100mm), which steps up to $127mm in Q4 (vs. consensus of $144mm) for FY'20 capex of $664mm, or slightly below the midpoint of the guidance range of $650-700mm.
Not expecting formal 2021 guidance, but maintenance mode likely.
Although PE's formal budget process does not commence until Nov./Dec., October 2020 maintenance mode is highly likely given the macro outlook. In 2021 maintenance mode (FY'21 oil production of ~110 MBO/d), we forecast ~$570mm of FCF before dividend or a ~14% FCF yield. Far above average 2021-2023 FCF yield. At our conference in early September, CEO Matt Gallagher projected that PE would generate 2021-2023 FCF that amounted to ~40% of its market cap at then strip price of ~$43 WTI on average.
De-risked Q3. On September 9th PE released an updated presentation ahead of our Energy-Power conference announcing lower operating costs, lower well cost targets and increased 2020 FCF, and reinstating 2020 production and activity guidance. Also, PE provided Q3 oil production guidance of 109.5-111.5 MBO/d and reiterated that, in addition to the 2 rigs + 2 frac crews activated in July, management expects to add up to 2 more rigs in October. Given the timing of the frac crews, we anticipate that Q3 well turn in lines are weighted toward the back half of the quarter.
However, since management had over 2/3rds of the quarter in the bag when it provided Q3 production guidance, PE's quarter is relatively de-risked, in our view. Our model suggests that PE could be at the high end of the oil guidance range (109.5-111.5 MBO/d) based on 22 gross operated wells to sales, and Bloomberg consensus is 111.2 MBO/d. On capex, we forecast $95mm for Q3 (vs. consensus of $100mm), which steps up to $127mm in Q4 (vs. consensus of $144mm) for FY'20 capex of $664mm, or slightly below the midpoint of the guidance range of $650-700mm.
Not expecting formal 2021 guidance, but maintenance mode likely.
Although PE's formal budget process does not commence until Nov./Dec., October 2020 maintenance mode is highly likely given the macro outlook. In 2021 maintenance mode (FY'21 oil production of ~110 MBO/d), we forecast ~$570mm of FCF before dividend or a ~14% FCF yield. Far above average 2021-2023 FCF yield. At our conference in early September, CEO Matt Gallagher projected that PE would generate 2021-2023 FCF that amounted to ~40% of its market cap at then strip price of ~$43 WTI on average.