Energy Prospectus

Rosetta Resources (ROSE) 3rd quarter earnings per share beat my forecast by 10 cents per share. They reported quarterly EPS of $0.61. More important, they are getting very good results in the Eagle Ford and they have expanded their drilling inventory of proven locations. This is what a GROWTH stock is all about. - Dan

I will have an updated forecast model posted this afternoon.

Highlights for the quarter included:

•Established new productive Eagle Ford acreage outside of Gates Ranch -- During the quarter, Rosetta successfully tested three new Eagle Ford areas across 13,600 net acres in the liquids window outside of Gates Ranch. This newly delineated acreage has more than 200 drilling locations. An additional 10,000 acres remain to be evaluated in 2012.

•Revised Gates Ranch well spacing -- Based on reservoir analysis, Rosetta made an early call to begin drilling its Gates Ranch program on 65-acre spacing. This increased well density will result in the ultimate development of roughly 325 wells of which an estimated 275 wells remain to be drilled.

•Advanced Southern Alberta Basin horizontal drilling program -- Rosetta drilled three horizontal wells in the northwest Montana play and initiated drilling operations on a fourth well during the third quarter of 2011. One of the wells has been completed and is currently on test with two more completions underway. The remaining four horizontal wells will be completed during the first quarter of 2012.

•Progressed midstream expansions -- Rosetta is benefiting from improved performance by Eagle Ford midstream providers. Recent expansions that became operational in October almost three weeks ahead of schedule increased total firm gross wet gas capacity for the Eagle Ford to 123 million cubic feet per day ("MMcf/d"). This will allow the Company to move 166 million cubic feet equivalent per day ("MMcfe/d") of net Eagle Ford volumes on a firm basis. Firm gross wet gas capacity of 160 MMcf/d will become available in January 2012 increasing Rosetta's net total firm capacity to 216 MMcfe/d.

•Strengthened margin performance -- The Company's margins continue to increase from its focus on development of the Eagle Ford shale. As compared to the third quarter of 2010, equivalent average sales prices improved by 18 percent, the depreciation, depletion, and amortization ("DD&A") rate declined by 28 percent with other average costs decreasing another 15 percent. The gains in average realized pricing were driven by the record third quarter oil, condensate and natural gas liquids ("NGL") production of 13,000 barrels per day ("Bbl/d").

> Rosetta's projected 2011 exit rate is anticipated to range from 190 -- 200 MMcfe/d and full year guidance is reaffirmed at 160 -- 170 MMcfe/d based on the previously announced $475 million capital program. The Company is currently producing approximately 195 MMcfe/d of which 54 percent is liquids [This is a big jump from the 154 MMcfe/d they produced in Q3].

> Total per unit costs are expected to continue on a favorable trend as outlined in the expense guidance summarized in their press release.

> Rosetta also reiterates its preliminary estimate of 2012 production at 220 -- 240 MMcfe/d, approximately a 40 percent increase over 2011. In addition, the necessary firm transportation capacity is now in place to meet planned 2012 production levels.

This generates a VERY IMPRESSIVE forecast for 2012. EPG members can find my forecast under the Sweet 16 Tab.

BMO on ROSE:

More Honey Holes (Post-Call Remarks)

Event
Our chief takeaway from 3Q11 results: new wells completed in Dimmit and
DeWitt counties, Texas (Briscoe Ranch, Central Dimmit and Karnes Trough
areas) help put to rest our concern that Rosetta was a one-trick pony (Gates
Ranch). The company reported the Briscoe Ranch 1H well carried an IP rate of
~1,990 BOE/d (~67% oil/liquids; Briscoe Ranch leasehold totals ~3,500 net
acres), the Vivion 1H well carried an IP rate of ~680 BOE/d (89% oil/liquids;
Central Dimmit leasehold totals ~8,100 net acres), and the Klotzman No. 1 well
carried an IP rate of >3,000 BOE/d (89% oil/liquids; Karnes Trough area
leasehold totals ~2,000 net acres). The company stated on today’s conference
call that such results could be competitive with economics realized at Gates
Ranch. Beyond Eagle Ford producers, we look for the company to report on its
first three horizontal wells in the Southern Alberta Basin. First well completed
and flowing back. Two more coming. All on line by year-end is the expectation.

Impact
Positive.

Forecasts
We are raising estimates for 4Q11 and full-year 2012. The company reported
recurring 3Q11 EPS/CFPS of $0.61/$1.45 vs. BMOCM estimates of $0.53/$1.56
and the mean consensus estimates of $0.56/$1.51.

Valuation
Our $60 target is based on an NAV analysis that yields $68, ~7.6x next year’s
cash flow on our estimates. A premium much deserved in our opinion.

Recommendation
We rate the shares Outperform.

This is why you pay me the Big Bucks; to find gems like this. ROSE has a lot of upside. They were very smart to shift from gas to oil last year.