RSP Permian (RSPP)

[dan_s]

RSPP is the newest member of the Sweet 16. It was added 8/12/2016. My current valuation is $47.00, but I definitely see upside for this one. - Dan

John White over at Roth Capital issued a new report on the company this morning. Below are his comments.

RSPP’s recently announced acquisition meaningfully increases most of the metrics that drive our valuation. As such, we are moving our price target from $44 to $64.50.

Our title is an analogy to an order of pancakes and ties to the multiple stacked pay zone features (further detailed herein) of the recently announced acquisition.

RSPP has announced it has entered into agreements to acquire Silver Hill Energy Partners, LLC (SHEP I) and Silver Hill E&P II, LLC (SHEP II, and together with SHEP I, Silver Hill) for $1.25 billion of cash and 31.0 million shares of RSPP common stock, implying a total purchase price of approximately $2.4 billion (based on the recent trading prices of RSPP).

Silver Hill’s assets are entirely in the Delaware Basin and consist of: 1) ownership of ~68,000 gross/~41,000 net acres in northeast Loving and northwest Winkler Counties, Texas with ~15,000 BOE per day of production (69% oil, 86% liquids) from 58 producing wells (49 horizontals) and ~3,200 gross/~1,950 net total undeveloped locations. Silver Hill is comprised of two privately held entities controlled by Kayne Anderson Capital Advisors, LP and Ridgemont Equity Partners.

In our view, based on the information supplied by RSPP, this is a transformative acquisition. The transaction adds substantial scale on all the critical metrics. The deal: 1) increases RSPP’s current production by about 43% from approximately 35,000 BOE per day to about 50,000 BOE per day, 2) boosts net surface acreage by 68%, from about 60,700 to approximately 101,700, and 3) raises net horizontal locations 115%, from approximately 1,700 to about 3,650.

By our analysis this transaction is accretive to RSPP on EPS/CFPS/EBITDA and, NAV. Our 2016 EPS/CFPS/EBITDA improves significantly from $(0.25)/$1.69/$216 million to $(0.17)/$1.96/$258 million. Our 2017 EPS/CFPS/ EBITDA estimates improve from $0.71/$3.37/$398 million to $0.79/$4.10/$714 million.

If you would like to receive John White's full report, send me an e-mail ( dmsteffens@comcast.net ) and I will send it to you. - Dan

[dan_s]

John White has BUY ratings on CPE, EPM, ESTE, FANG, LONE, REI, RSPP and SYRG.