Energy Prospectus

Approach Resources (AREX) has taken a beating over the last six weeks. I assigned it to my Rice University intern and we should be ready to publish an updated profile on Friday. Just want to give you guys the heads-up that I am lowering my valuation to $26/share (compares to First Call's Price target of $28.65).

Bad weather in the Permian Basin will lower their Q4 production and slow down growth a bit.

It still looks good, but not quite as good as a couple months ago.

We will publish an updated profile on AREX Friday morning.

It is VERY IMPORTANT that you know that AREX uses the "Successful Efforts" method of account, compared to the "Full Cost" method used by most E&P companies. Successful Effort is much more conservative.

Recently there was a negative article on AREX published by Seeking Alpha that compares AREX's financial results to that of other Permian Basin companies. It is like comparing apples to oranges. This is why I constantly remind you guys to focus on cash flow per share. "Cash pays the bills, not GAAP earnings".

Based on my forecast model, AREX will generate close to $3.00 cash flow per share this year and close to $4.00 CFPS in 2014. So it is trading at less than 5X forward CFPS and they are now on record saying that production will be up 40% in 2014.

Approach's Q4 production should be up more than 20% from Q3 to Q4 and they will have some strong Wolfcamp results to report.

The Sweet 16 is currently trading at 7X CFPS. IMO companies with a track record of 30% annual production growth, a strong balance sheet and lots of low risk drilling inventory should trade around 8X CFPS.

Read the profile carefully.

I see the Excel spreadsheet for AREX under the Watch List tab, but not an updated Profile in pdf. Is it yet to be posted or am I not looking in the correct area?

If you did not get it via e-mail you need to check your profile and make sure we have your correct e-mail address.

BTW your EPG annual dues are due by 12/31.

I just re-posted the updated AREX profile (pdf) and forecast model (Excel). Sorry for the confusion.