Energy Prospectus

Deeper Cuts to Capex and Production Guidance
In an effort to live within its means and save core acreage, ROSE management
announced it is slashing it's 2015 capital budget to $350 million, down 53% from its
December guidance and down 71% y/y. As a result of lower investment levels, the
company cuts its 2015 production guidance to 60 MBoe/d, down 25% from its
December guidance and down 9% y/y. After growing its production an average of
30% each of the past four years, ROSE will see 2015 production decline 9% y/y as
it waits for commodity prices to rebound. In 2015, the company will complete
twenty gross operated Eagle Ford wells (focused in southern Gates Ranch) and
eight gross Wolfcamp 'A' wells in Reeves County, TX.

Rosetta Resources (ROSE) is doing the right thing in pulling way back on capex until oil prices improve, but I think the stock price will stay low until the outlook for oil prices improves. Declining production does not sit well with Wall Street. - Dan

"Rosetta has taken important steps the past several months to position the Company on solid footing so that our shareholders will benefit the most from a commodity price recovery," said Jim Craddock, Rosetta's Chairman, CEO and President. "We've chosen to defer production growth and focused instead on living within our means, maintaining our core acreage positions, and defending a target production level of about 60,000 Boe per day. Our project inventory is intact and we stand ready to increase capital spending when commodity prices warrant."

Operational and Production Outlook

The first year of the Company's two-year operational program is based on completing roughly 20 gross operated wells in the Eagle Ford and eight gross operated wells in the Permian. The Company will focus on the high rate of return areas in the southern Gates Ranch and the Wolfcamp 'A' bench in the Delaware Basin. Drilling and completion costs should account for approximately 80 percent of the total spending with the remaining 20 percent allocated to central facilities, leasehold, and other corporate costs.

As a result of the lower capital spending program, full-year 2015 production guidance is expected to range from 58 -- 62 MBoe/d. For the first quarter of 2015 the Company's production guidance is 64 -- 67 MBoe/d. The average oil ratio is expected to be approximately 28 percent in 2015 as the majority of activity moves to southern Gates Ranch. Rosetta's capital project activity and guidance anticipates the realization of drilling, completion and other service cost reductions ranging from 20 to 30 percent as compared with 2014 levels. The Company's cost per unit expense guidance for the first quarter and full-year 2015 is outlined in the attached "Summary of Guidance" table.

I have updated my forecast model, which will be available on the website in a couple hours. My Fair Value Estimate has been slashed to $24.00, compared to First Call's Price Target of $29.30.

On the bright side, what ROSE is doing makes the company a PRIME TAKEOVER TARGET. They have a lot of proven drilling locations in both the Eagle Ford and Permian Basin. I'm sure a lot of large-caps will be taking a hard look at this one.

Based on my forecast model, 2015 cash flow from operations should cover their reduced capital program. When oil prices bounce back, ROSE will be able to quickly ramp up their drilling program.