Riley Exploration Per (REPX) Price Target Update - Mar 7

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

Riley Exploration Per (REPX) Price Target Update - Mar 7

Post by dan_s »

Notes from Neal Dingmann at Truist Financial received today.

Riley Exploration Permian, Inc. (REPX)
Deal Adds Solid Production & Inventory Boosting Price Target

Riley’s announced acquisition last week not only adds immediate production, but also adds
notable future, attractive inventory that is likely to compete for immediate capital following
the early 2Q23 close. We believe the deal made good use of REPX’s previous under-levered
balance sheet, and likely finishing this year as strong as it started 2022. Further,
the additional activity could potentially translate to further operational efficiencies. As such,
our price target increases to $43 from $39
given our new higher 2023 estimated earnings
and FCF.

Positive Results from More Active Plan
We forecast REPX could have slightly more active operations this year than last given
the upcoming assets soon to be added. We believe more steady D&C could result in
incremental operational efficiencies. Further, we continue to believe the new, larger
proforma helps provide scale at a time when investors continue to value larger cap names,
and the additional assets give the company an outlet for activity outside of its occasionally
midstream-constrained base operations. We continue to favor a more active plan for our
smaller cap names, especially for companies like REPX with liquids upside.


Updating Estimates and Increasing Price Target to $43 from $39
Despite last week’s announced acquisition not closed yet, we have incorporated the deal
into our estimates resulting in slightly higher earnings and FCF; boosting our price target
despite the additional debt this year. While we have not modeled any notable well upside
for the future results, we believe there is a good chance many of the new wells come online
with higher returns than recent results. We also have updated our model for 4Q22 actual
commodity prices along with more appropriate costs and organic volumes. As such, our price
target increases to $43 from $39 with our new price target derived from two equally weighted
methodologies with the first being our ’23 EV/EBITDAX multiple of 5.0x (3.8x peer group
average) applied to our 2023E EBITDAX estimate of $280MM ($197MM consensus), and
the second being a FCF/EV Yield assumption of 11.0%. We believe the premium multiple
versus the peer group average is warranted given the potential upcoming CCUS business. < CCUS is Carbon Capture and Sequestration.
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Neal's forecast model actually shows more production and higher net income than my model for 2023. My net income forecast for 2024 is higher than Neal's because I am assuming WTI will average $90/bbl next year. Neal's production estimate for 2024 is 22,000 Boepd, compared to my guess of 21,500 Boepd. If Riley does ramp up to a continuous drilling program and their CO2 flood works, 2024 production could be much higher.
Dan Steffens
Energy Prospectus Group
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