Magnum Hunter Resources

MHR : NYSE : US$7.34
Target: US$10.00


Magnum Hunter Resources is an oil-leveraged
independent oil and gas company, engaged in low-risk
development and exploration in the Williston Basin and
Appalachian Basin (Marcellus and Utica Shales).


Investment recommendation
MHR has built solid asset bases in the Marcellus and Utica Shales as
well as the Williston Basin (WB). We believe a renewed focus on the drill
bit and deleveraging the balance sheet (with further asset sales) should
continue to act as positive catalysts for the stock going forward.
Investment highlights
 Growth continues to be driven by the Marcellus and Utica. The
company expects to bring on a third rig here in the near future, and
wells targeted to be brought online between now and YE 2014 are
expected to add ~31 MBoe/d in net production; this is greater than
the company’s entire output from continuing operations in Q1/14.
MHR remains comfortable with its 2014 production exit rate
guidance of 32.5 MBoe/d from continuing operations.
 MHR continues to build up the value of its Eureka Hunter
midstream business. As of April 2014, the Eureka Hunter’s
gathering flow through recently hit a peak rate of 236 MMcf/d. With
the completion of expansion projects currently under construction,
the company expects that Eureka Hunter will have a throughput
capacity of 1.2 Bcf/d by YE 2014.
 The company has done a good job enhancing its liquidity. As of May
6, 2014, MHR had total liquidity of ~$131.2M. To further enhance
its liquidity, the company is pursuing additional non-core asset
sales. It expects to close such potential sales throughout the
remainder of 2014. MHR has already sold its Canadian WB assets
for US$68M, which is expected to close this week.
Our $10 price target represents a 20% discount to a ~$12.50 NAV

Moody’s Shale Gas – Sector Review

eeking Alpha via 

11:52 AM (7 minutes ago)

to me
 as reported by Seeking Alpha April 1
not great review for Quicksilver

Moody’s: Marcellus shale gas producers to benefit most • 2:51 PM

  • Marcellus shale gas producers will benefit more than producers elsewhere in the U.S. because of several favorable circumstances, even if prices were to decline to 2012 levels, according to a Moody’s report.
  • Anadarko Petroleum (APC), Southwestern Energy (SWN) and Chesapeake Energy (CHK) – all of which entered the play early during a weak natural gas price environment – especially have benefited, Moody’s says.
  • An infrastructural overhaul is still needed as buyers move away from traditional production hubs such as the Haynesville and Barnett, the credit rating agency says; the transition already has caused a decline in credit quality for Exco Resources (XCO), Forest Oil (FST) and Quicksilver Resources (KWK).

Penn Virginia Corporation Analyst Day Update

PVA : NYSE : US$10.40
Target: US$12.00

Penn Virginia Corporation is an exploration and production company with operations in Texas, the Mid-Continent, Appalachia and Mississippi.
All amounts in US$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
Investment recommendation
PVA has successfully transitioned to a liquids-focused company while retaining its leverage to an improvement in natural gas prices. PVA has built a sizeable position in the volatile oil window of the Eagle Ford (EF) Shale for a company its size, and has generated solid results with the drillbit while bringing costs down at the same time.
Investment highlights
 PVA held an Analyst Day (and a half) in Texas on November 19/20 . The meetings, which included a field trip to three EF well sites, reinforces the view that PVA is one of the top ways to play this leading shale play, with a growing position now over 70K net acres and results that continue to get better, with 30 day rates increasing and cost continuing to come down.
 While the event was taking place, Devon announced the $6B acquisition of EF player GeoSouthern. PVA was a leading gainer on the news, a recognition we believe of its growing prominence in the EF and relative closeness to GeoSouthern’s acreage. Backing out production at ~$75K/flowing daily Boe, we value the transaction at ~$25K/acre.
 In October 2013, the company’s borrowing base was increased from $350M to $425M. Pro forma liquidity at September 30, 2013 was ~$330M, up from ~$300M at June 30, 2013. The company plans to raise up to $250M from non-core assets sales in H1/14 to enhance liquidity further.

Devon Energy / GeoSouthern Energy

DVN : NYSE : US$62.77
Target: US$86.00

Devon Energy is an oil and gas E&P company with assets in the U.S. and Canada. The company also has a significant midstream operation. It is headquartered in Oklahoma City, OK.
All amounts in US$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
Investment recommendation
We view the possible acquisition of GeoSouthern Energy very positively since it would give DVN added running room to grow its oil volumes from a new position in the Eagle Ford Shale. A deal would bolster the already solid U.S. oil production growth it is getting from its emerging Permian and Miss-Woodford plays. We believe that greater oil growth and a higher mix of oil as a share of its total output are key elements to DVN receiving a higher valuation for its deeply undervalued E&P business.
Key points:
 Acquisition would substantially add to DVN’s U.S. oil production:
U.S. oil currently accounts for 12% of DVN’s total volumes and we project growth of 31% in 2014 and 23% in 2015. This deal would likely increase DVN’s oil production by a significant amount, as GeoSouthern is the 4th largest oil producer in the Eagle Ford. The private company produced 23 MBopd in 2012 – that amount alone would increase DVN’s U.S. oil volumes by over 25%.
 GeoSouthern has a very attractive acreage position in the Eagle Ford from being a “first mover” in this play: GeoSouthern has a 50% working interest in 173,000 gross acres in the Black Hawk field; its partner is BHP Billiton. The company also has 68,000 net acres further north in Fayette County.
 Eagle Ford is a great fit for DVN’s shale expertise: DVN famously was first to develop on a “mass manufacturing basis” in the Barnett Shale (TX); we believe it could achieve similar results in the Eagle Ford.
 DVN’s very strong balance sheet allows for a $6B acquisition: DVN’s net debt/cap ratio (pro forma for the Crosstex deal) is just 18%. With $4.3B of cash on hand, we believe the company is very much able to not only grow this asset quickly, but acquire other assets as well.

Northern Oil and Gas

NOG : NYSE MKT : US$17.11
Target: US$19.00

Northern Oil and Gas engages in acquisition, exploration, exploitation, and development of oil and natural gas properties in the US Rocky Mountains. Its core focus is the Middle Bakken formation in the Williston Basin of Montana and North Dakota. Its secondary focus is Red River and Mission Canyon formations in Montana

Energy — Oil and Gas, Exploration and Production
Investment recommendation
NOG is a Williston Basin (WB) Bakken/Three Forks pure-play with a non-operated model. The company is one of the largest non-operating participants in the play and a natural clearinghouse for non-operated working interests. We see good value in the stock and believe a resumption of production growth, which is now happening, should be the recipe for a higher share price.
Investment highlights
 NOG announced that Q3/13 production is expected to average ~13MBoe/d, a 19% Q/Q increase. This soundly beat our 12.2 MBoe/d and consensus of 12.3 MBoe/d. During the quarter, the company added 147 gross (12.1 net) wells to production with an additional 260 gross (18.8 net) wells that were drilling or awaiting completion at the end of the quarter. NOG had a producing well count at the end of the quarter of 1,585 gross (133.5 net).
 NOG expects Q3 realized price per Boe, including the effect of settled derivatives, to be in a range of $82.00 – $83.00, and its LOE to be in a range of $9.50 – $9.75/Boe.

Gulfport Energy Target Price $ 80

GPOR : NASDAQ : US$65.59
Target: US$80.00

Gulfport Energy Resources is an Oklahoma City, OK, headquartered E&P with core producing assets in the Utica shale and Louisiana Gulf Coast (West Coast Blanche Bay and Hackberry fields). Gulfport also has equity interests in Diamondback Energy (Permian Basin), Grizzly (Alberta Oil Sands) and Tatex II & III (Phu Horm gas field in Thailand). GPOR has additional acreage in the
Bakken and Niobrara.
All amounts in US$ unless otherwise noted.

Execution hiccups expected in early stage of play 
GPOR presented at Canaccord Global Resources Conference on Oct. 17, the day after it provided Q3 actual prod and an exit rate for YE13. GPOR’s Q3 prod at ~13mboepd beat its earlier guidance due to midstream improvements that caused some recent wells to come online earlier than expected.

After the Q3 update, GPOR’s stock has fallen ~3.5% due to a reduced expected exit rate (27-32mboepd). Notably, the exit rate has been lowered due to ~10 wells that will be hooked in early Jan. ‘14 instead of by YE13. A loss of mud circulation in the vertical section between the surface casing and the “heel” caused GPOR to install intermediate casing in these wells. GPOR felt it could avoid the casing in the majority of its wells and save $1mm/well. Instead, now it will run a “formation integrity test” on each well by pumping high-pressure water and checking for any loss in circulation.

GPOR expects to case half of its wells going forward. With the delay, we model 27mboepd for Q4/13 and 14mboepd FY13. On another note, Q3 prod showed a higher yield of gas (vs. NGLs), but with cryogenic facilities coming online soon, we will
expect NGL yield to improve.
Q3 Preview:

With prod updated, focus shifts to dry das activity GPOR also disclosed that it picked up 9,000 gross acres, mostly in the
dry gas window. In our discussions, the acreage was acquired at $7,000/acre, which could be a highly accretive deal given the big wells expected from the area and 100% of dry gas hedged at ~$4/mcfe. Now focus turns to the Irons well; we expect very early rates on the call.
Positives balance negatives
We model Utica on the basis of GPOR’s acreage in the oil/ wet gas/ condensate/dry gas windows. Upside to the recent deal is balanced by completion delays and lower WI next year. We maintain OUR price target, but consider recent weakness as a strong buying opportunity.

Sanchez Energy : Eagle Ford Play

SN : NYSE : US$24.92
Target: US$30.00

Investment recommendation
With over 140K net acres in the oil window of the Eagle Ford (EF) Shale, no company is more levered to the play relative to its size. Substantial production and cash flow growth should be the drivers to a higher stock price, in our view, as the company is now in full-scale development mode in the EF. A newly established 40K net acre position in the Tuscaloosa Marine Shale (TMS) provides future upside potential.
Investment highlights
 The company’s production growth is accelerating. After producing 1.9 MBoe/d in all of 2012, Q2/13 production was 7.7 MBoe/d with only one month of Cotulla. Current production pro forma for the Wycross acquisition is ~15.5 MBoe/d. Exit rate guidance for 2013 suggests a doubling or more from Q2/13 levels.
 SN is entering the TMS with a 40K net acre position in the core of the play that the company believes has over 200 MMBoe of recoverable resource. That said, over 90% of drill and complete (D&C) capex in 2013 is earmarked for the Eagle Ford as SN lets others test the TMS in the short to intermediate term.
 Both the recent equity and high-yield financings were upsized due strong demand. Pro forma for the sale of 9.6M shares of common and $200M of 7.75% Senior Notes, SN has over $500M of liquidity heading into an accelerated production growth phase.

Shoal Point Energy ( SHP) : 5 Cent Lottery Ticket

The potential of tight oil has added a new dimension. Shoal Point Energy Ltd. discovered as much as 23 billion of oil reserves in Green Point Shale last year before running into corporate and funding issues.

Since then, privately-owned Black Spruce Exploration Corp. has entered the fray, sewing up a number of agreements with Shoal and other companies to assemble a patchwork of 2.3 million acres across Newfoundland’s western coast.

The subsidiary of Toronto-based Foothills Capital Corp., Black Spruce is close to securing US$50-million to drill four wells this year, and intends to spend as much as $300-million for up to 80 wells by 2015. It has also bought a triple drilling rig to the region to facilitate deepwater drilling.

“Everybody is aware of offshore potential, but onshore has been sporadic, has not had proper equipment and not been properly funded,” David Murray, the company’s president and CEO told the Financial Post. “We are dealing with a new basin on the West Coast, which is we think is pretty interesting.”

To the dismay of some residents, the company also intends to use hydraulic fracturing at the sites but has not applied for a permit yet.

“We hope to recover one billion of reserves from the Green Point shale lands.”

The province desperately needs the bigger and the smaller discoveries to bear fruit in order to maintain its status as East Coast’s most prolific crude producer.

“We have acreage similar to the North Sea,” NOIA’s Mr. Giles said. “We have drilled about 140 wells to date in our East Coast, and it is generating huge contributions to the GDP. That’s with 140 wells, versus 4,000 wells drilled in the North Sea.”

Comstock Resources Target Price Increased To $ 28

CRK : NYSE : US$18.00
Target: US$28.00

Comstock Resources is an exploration and production company focused on development of the Eagle Ford Shale, the Permian Basin and the Haynesville Shale.

Investment thesis

We are increasing our target price $3 to $28 per share following the divestiture of the company’s Permian Basin assets. Specifically, Comstock is selling 53.3K net acres in the Permian Basin (40.2K net acres in Reeves County) for $768 million in cash. The properties currently produce ~3.3 Mboepd (~73% oil). Robust sales price, acceleration of Eagle Ford development drives $3 increase in CRK target price Assuming a $60K/Mboepd production rate multiple, the divesture equates to an elevated $10.7K/acre ($14.2K/Reeves County acre) transaction multiple.

Importantly from a value perspective, the company plans to increase development activity from a three-rig to a six-rig program the second half of the year and drill 72 gross Eagle Ford wells (~65% WI) with ~80% of the wells in McMullen County and the balance in Atascosa/LaSalle Counties.
Permian divestiture eviscerates capital structure concern Pro forma the sale, Comstock’s net debt-to-EBITDA at year-end ’13 declines from ~3.5x to ~2x, which is in line with the industry median, and net debt-to-EBITDA turns should stabilize thereafter assuming $400+ million per annum capital plan.
Improving Eagle Ford results
In 4Q/12, Comstock completed seven Eagle Ford wells that averaged ~580 Boepd the first 30 days, suggesting recoveries of ~475 Mboe for a drill/complete cost of $8+ million. Overall capital productivity enhanced by ~9% with Eagle Ford JV The company’s Eagle Ford JV assigns a one-third interest in the next 100 wells for the equivalent of $25k per acre. Assuming 80-acre well spacing, the partner pays $0.67 million and receives a one-third interest in each well. In essence, the JV is funding ~9% ($30+ million) of the company’s non-Permian Basin go forward capital spending this year.

Overall capital productivity enhanced by ~9% with Eagle Ford JV
The company’s Eagle Ford JV assigns a one-third interest in the next 100 wells for the equivalent of $25k per acre. Assuming 80-acre well
spacing, the partner pays $0.67 million and receives a one-third interest in each well. In essence, the JV is funding ~9% ($30+ million) of the
company’s non-Permian Basin go forward capital spending this year.

Rosetta Resources

Rosetta (novel)

Rosetta (novel) (Photo credit: Wikipedia)

ROSE : NASDAQ : US$51.78
Target: US$70.00

Rosetta Resources is an exploration and production company with operations in south Texas and northern Montana.

Investment thesis

We are lowering our target price $5 to $70 per share due to a lower expected long-term (‘14+) oil percentage relative to overall liquids production. Specifically, assuming three rigs running in Gates Ranch and one rig respectively in the Briscoe Ranch and Central Dimmit County
areas, we believe oil should comprise ~40% of total liquids production versus our prior expectation of ~45%. Further, given this disposition of drilling activity, liquids should constitute ~62.5% of total production, which is unchanged from our prior analysis
and company’s guidance.
Given a ~$700 million ’13 capital plan, we anticipate Rosetta exits ‘13 fractionally above the high end of their guidance of 52-56 Mboepd.
ROSE trades at a ~20% discount to the group yet should generate ~30% per annum CFPS growth (’12-’14E) versus the sector’s ~20% CAGR.
Accordingly, we feel ROSE offers ~10% differential upside to the group. Rosetta’s a natural consolidator in the Eagle Ford trend with a capital
structure that has significant debt capacity Considering Rosetta’s exceptional execution in the Eagle Ford, the company should be a natural asset consolidator in the trend. Moreover, Rosetta’s net debt-to-EBITDA is only ~1x versus the industry’s net debt to- EBITDA financial leverage of ~2x. This implies the company has ~$500 million of incremental debt capacity even before accounting for the debt capacity of an acquired asset.
Even assuming recent extremely weak NGL prices, equity downside limited Last month, the NGL complex retreated to ~34% of NYMEX oil, which is the lowest relative valuation evidenced thus far in this cycle. Long-term NGLs should comprise ~37.5% of Rosetta’s production. Assuming the NGL complex relative to NYMEX oil was to remain at the recent exceedingly weak level, the downside to our target price is just ~4%.


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