RBC Capital's Best Global Energy Ideas as of June 1

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dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

RBC Capital's Best Global Energy Ideas as of June 1

Post by dan_s »

It is an honor for these companies to make the RBC Best Ideas list:
Permian Resources (PR)
Range Resources (RRC)
Diamondback Energy (FANG)

The energy sector team at RBC Capital is "World Class".
Dan Steffens
Energy Prospectus Group
dan_s
Posts: 34471
Joined: Fri Apr 23, 2010 8:22 am

Re: RBC Capital's Best Global Energy Ideas as of June 1

Post by dan_s »

Summaries of why RBC likes them:

Permian Resources (PR)
We believe PR shares should outperform the peer group over the next 12 months.
The company has large, contiguous acreage positions in the core of the southern and
northern Delaware Permian with a 10-15 year inventory.
 Strong free cash flow. We forecast that PR is capable of generating among peer
leading FCF yields that can support a robust shareholder-return strategy.
 Balance sheet strength and shareholder returns. Balance sheet leverage is at a
sustainable sub-1.0x ratio. Management is prioritizing shareholder returns,
particularly with dividends and plans a strong fixed dividend along with a minimum
50% variable payout of FCF. Dividends are more the focus, but buybacks will occur
opportunistically, especially if private equity sponsor selling occurs. Asset
optimization is a priority and should add to shareholder value.

Range Resources (RRC)
We expect RRC shares to outperform its peer group over the next 12 months. The
company’s large legacy asset in the core of Marcellus in the Appalachia Basin
provides the ability to efficiently maintain its production base for more than a
decade.
 Improved balance sheet. Balance sheet leverage sat above peers and in recent years
was an investor overhang; however, this has been rapidly improving recently with
FCF generation used for debt reduction.
 Selling portfolio and export agreements. RRC benefits from a robust selling portfolio
and export agreements, which cover a large portion of its NGL/natural gas
production and result in premium realizations relative to peers and local pricing.
 Deleveraging goal. Debt reduction remains a top priority for RRC and we see a rapid
path toward the $1.0–1.5 billion of aggregate debt.
 Operational expertise. The company has a top-class technical team, in our view, that
continues to push lateral lengths longer after successfully drilling multiple 19k
laterals in recent years. We believe RRC has some of the lowest D&C costs among
peers.
 ESG track record. RRC has a strong ESG track record of being an industry leader on
environmental best practices and safety. The company is targeting a 15% GHG
intensity reduction by 2025 relative to 2019 levels and additionally is targeting net
zero emissions by 2025 through continued emission reduction efforts and carbon
offsets.

Diamondback Energy (FANG)
We believe FANG shares should outperform its peer group over the next 12 months.
Management has built a solid Permian Basin position with a deep inventory of
liquids-rich development opportunities. The company is one of a few that have
amassed a combination of quality assets, strong economic growth, minerals
ownership, and a water business, which collectively help to provide a competitive
advantage.
 Defining low-cost operator. We believe FANG has one of the lowest cost structures
in the basin and a corporate cash flow break-even (including dividend) that is among
the best in the industry.
 Robust shareholder return proposition. A shareholder-friendly return proposition
that includes at least 75% of FCF in the form of a fixed dividend, variable dividend,
and stock buybacks. Management plans to be opportunistic on buybacks when FANG
shares trades at or below the implied mid-cycle valuation ($60-65/bbl based).
 Depth of tier-1 inventory. The company has a runway of tier-1 inventory projects
that extend more than a decade. FANG has a track record of achieving its growth
targets while spending within cash. It has a willingness and demonstrated ability to
adjust activity levels quickly in response to challenging market conditions.
Dan Steffens
Energy Prospectus Group
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