Energy Prospectus

First Quarter 2016 Highlights and Recent Developments
•Net production averaged 29.1 MBoe/d, up 15% versus 4Q15 and 54% year-over-year. < Compares to my forecast of 27,500 boe per day for Q1
•Daily oil production increased 20% quarter-over-quarter and 70% year-over-year, with oil volumes representing 65% of total production in 1Q16.
•Parsley announced agreements to acquire 22,908 net acres in the Southern Delaware and Midland Basins for approximately $359 million in cash. At the time of announcement in early April, estimated production from the acquired properties was approximately 2,300 Boe/d. Acquired assets also include six horizontal wells in various stages of drilling and completion.
•Lease operating expense ("LOE") per Boe decreased for the fourth consecutive quarter, down 6% versus 4Q15 to $5.25.
•The Company's bank lending group affirmed Parsley's borrowing base of $575 million, reflecting the Company's strong financial position.
•As of March 31, 2016, pro forma for the acquisitions announced and equity offering completed in April, the Company had $164 million of cash on hand, $738 million of liquidity, and a net debt to annualized adjusted EBITDAX ratio of 1.6x.
•Moody's upgraded Parsley's Corporate Family Rating to B2 from B3 and upgraded the rating on the Company's senior unsecured notes to B3 from Caa1.

Raymond James upgrade PE to STRONG BUY this morning.

I have updated my forecast model for PE and it will be available for download from the EPG website late today.

My valuation increases by $3.75/share to $28.50. This compares to First Call's Price Target of $26.96.

PE has 100% of this year's oil production covered by Put contracts that eliminates their downside risk for oil prices. Also, their first quarter production was way above what I had in my forecast model. PE did not raise their production guidance (31,500 to 34,500 boepd) for 2016, but based on their very good well results, I expect actual production to exceed this range with an exit rate of more than 40,000 boepd. The acquisition that will close this month will add 2,300 boepd and they also get six drilled wells waiting on completion that should spike production in Q3.

This is why Wall Street loves the Permian Basin companies. Below is from the PE conference call:

"Just focusing on Lower Spraberry, the Wolfcamp A and the Wolfcamp B on a fully down spaced scenario, we could have 58 wells per section when you incorporate a second Wolfcamp B flow unit. Currently, we count no more than 24 wells per section in these intervals, with nothing counted yet in the upper Wolfcamp B. So clearly, a lot of upside if we can achieve even a fraction of these possibilities. There's a lot of talk these days about completion optimization, and this is an area in which we've really been ahead of the curve. We are one of the first companies to go to slick water in the Wolfcamp and then ramp up to tighter stage spacing and higher proppant loading. There aren't many secrets in this business, so it's no surprise to see convergence on many of these variables. We've been holding pad around 170 feet between stages and 1,700 to 1,800 pounds of sand per foot for several quarters now, but we're gearing up for what we're calling a monster frac in a couple of months."