All posts in category Shale

Comstock Resources Target Price Increased To $ 28

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

COMPANY DESCRIPTION:
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.

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by jackbassteam on March 19, 2013  •  Permalink
Posted in Eagle Ford, Shale
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Posted by jackbassteam on March 19, 2013

http://amp2012.com/2013/03/19/comstock-resources-target-price-increased-to-28/

Rosetta Resources

Rosetta (novel)

Rosetta (novel) (Photo credit: Wikipedia)

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

COMPANY DESCRIPTION:
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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by jackbassteam on February 10, 2013  •  Permalink
Posted in Eagle Ford, Natural Gas, Shale
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Posted by jackbassteam on February 10, 2013

http://amp2012.com/2013/02/10/rosetta-resources/

ARC Resources Ltd.

Montney Cemetary

Montney Cemetary (Photo credit: tuchodi)

ARX : TSX : C$23.91
BUY 
Target: C$27.50

COMPANY DESCRIPTION:
ARC Resources is an intermediate sized dividend paying Canadian E&P company. ARC’s shares trade on the Toronto Stock Exchange under the symbol “ARX”. All amounts in C$ unless otherwise noted.

TOWER OF MONTNEY OIL
ARC released its fourth quarter and year-end results and its year-end reserve and resource update. It solidly beat Q4 consensus and our estimates given continued strong performance at Dawson and flush volumes at Pembina. Beyond the solid operational results, the highlight of its release for us was

1) 41.3 mmboes of positive technical reserve revisions owing to strong well performance mainly in the NEBC Montney at Sunrise and Dawson as we had anticipated and

2) 1.5 billion barrels of oil in place recognized on its Tower Montney lands.

We have updated our NAVPS estimate to $27.69 and commensurately increased our 12- month target to C$27.50 (from C$26.50) and maintain our BUY rating on the stock. Our target price is based on an unchanged 1.0x multiple to NAVPS and reflects a 2013E EV/DACF multiple of 12.0 times.
Investment highlights
Q4 production and cash flow beat. Q4 volumes of 95,725 boe/d beat our 91,563 boe/d and consensus of 92,659 boe/d. CFPS of $0.64 was
commensurately ahead of our $0.58 and consensus of $0.57.
41.3 mmboes of positive technical revisions anchored its 6% increase in total reserves growth YoY. Upward revised reserve bookings at Sunrise
(average up to ~8 Bcf per well) and Dawson (also up versus the average 6.5 Bcf per well last year) provided the bulk of the increase.
A towering oil opportunity. GLJ estimates 1.5 billion barrels of oil in place on its 43 sections with Upper Montney oil potential; reserves and
contingent resources at year end imply only a 1% recovery factor.
Valuation
ARC currently trades at a 0.9x multiple to CNAV, 10.8x EV/DACF, and $90,600/BOEPD based on our 2013 estimates, versus peer group averages of 0.8x CNAV, 9.8x EV/DACF, and $76,000/BOEPD.

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by jackbassteam on February 8, 2013  •  Permalink
Posted in Alberta, Energy, Montney, Shale
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Posted by jackbassteam on February 8, 2013

http://amp2012.com/2013/02/08/arc-resources-ltd/

Anadarko Petroleum

Anadarko Tower

Anadarko Tower (Photo credit: Jujutacular)

Anadarko Petroleum

APC : NYSE : US$80.02
BUY 
Target: US$120.00

COMPANY DESCRIPTION:
Anadarko Petroleum is an exploration and production company with global operations in countries including the United States, Algeria, Brazil, Ghana and Mozambique.

Investment thesis


Last quarter, Anadarko raised ’12 production guidance ~1% with no change in capital spending, reinforcing our view of APC’s differential
capital productivity. In Q4/12, we expect the company to deliver ~68 Mmboe of production, which is ~1.5% above guidance (65-67 Mmboe). The
calibration of capital and production imply Anadarko’s capital productivity is ~20% superior to industry (liquids-normalized).
Potential upside to our target includes deepwater Gulf of Mexico exploration/appraisal success beyond sanctioned projects and the evolution
of Mozambique development. Preliminary analysis suggests a 10-train Mozambique LNG development (36.5%WI) commencing late this decade
and sequenced as one train per year over ten years would increase our target price ~$10/share assuming a FOB LNG price of ~$7/Mmbtu.
Investment highlights
 US onshore growth drivers: The assets underpinning the company’s US onshore sequential production growth in the third quarter included the
Eagle Ford (+23%), East Texas (+13%), Wattenberg (+6%), Marcellus (+6%) and Greater Natural Buttes (+4%).  Intensive Wattenberg field development: Anadarko has increased horizontal activity to 10 rigs in the royalty advantaged Wattenberg field. Horizontal Niobrara/Codell wells recover ~350 Mboe (~70% liquids) for a cost ~$4.5 million.

The company anticipates drilling ~200 horizontal wells per annum. The development scheme contemplates up to 16 horizontal Niobrara/Codell wells per section.
 APC confident in favorable Tronox outcome: Anadarko no longer believes a loss is probable related to the Tronox litigation. The company’s high end estimate of potential loss is ~$1.4 billion. We believe the market is embedding ~$3/share of penalty related to the litigation. A judicial rendering is expected in February/March.

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by jackbassteam on February 4, 2013  •  Permalink
Posted in Energy, Oil, Shale
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Posted by jackbassteam on February 4, 2013

http://amp2012.com/2013/02/04/anadarko-petroleum/

Comstock Resources

Schematic E-W section showing the Eagle Ford S...

Schematic E-W section showing the Eagle Ford Shale among the geological strata beneath the DFW Metroplex (Photo credit: Wikipedia)

Comstock Resources

CRK : NYSE : US$14.39
BUY 
Target: US$26.00

COMPANY DESCRIPTION:
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 lowering our target price $1 to $26 per share due to the base effect of appreciably less than expected fourth quarter oil production.
Normalized for ~750 Bopd of curtailed production due to offset well stimulation in the Eagle Ford and artificial lift installation in the Eagle Ford and Wolfbone programs, oil production in the fourth quarter would have been ~6,850 Bopd versus our expectation of ~7,700 Bopd
Our ’13 oil growth expectation of ~43% is toward the low end of company guidance (40%-60%), while we anticipate gas production declines ~25%,
which is at the midpoint of guidance (22%-28%).

Comstock offers modestly greater CFPS growth (’12-’14E) relative to the sector though trades at 20%+ discount (’13E EBITDA). CRK has ~80%
potential upside to our target price versus ~30% upside for the group.
Investment highlights
Elevated leverage should subside as an investor concern over the next year At year-end, Comstock’s net debt-to-EBITDA was ~4x, though should fall toward 3x by the end of this year, and decline below 3x in ’14E.
Solid Eagle Ford/Wolfbone results, encouraging industry Wolfcamp test In 3Q/12, Comstock completed six Eagle Ford wells that commenced at an
average of ~800 Boepd, suggesting a recovery of 500+ Mboe. Vertical Wolfbone wells have commenced at an average of ~350 Boepd and recover ~200 Mboe for a cost of ~$4.5 million. A recent nearby industry horizontal Wolfcamp test (~3,600’ lateral, 20 frac stages) produced ~950 Boepd the first 30 days, implying a recovery of ~700 Mboe.
Overall capital productivity increases ~7% 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 funds ~7% (~$30 million per annum) of the company’s capital spending.

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by jackbassteam on January 28, 2013  •  Permalink
Posted in Eagle Ford, Energy, Haynesville Shale, Shale
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Posted by jackbassteam on January 28, 2013

http://amp2012.com/2013/01/28/comstock-resources/

Comstock Resources Target $ 27

Comstock miners, 1880s. Caption on original: &...

Comstock miners, 1880s. Caption on original: “To Labor is to Pray.” (Photo credit: Wikipedia)

Comstock Resources

CRK : NYSE : US$14.72
BUY  Target: US$27.00

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

Investment recommendation


After two days of investor meetings, management seems highly aware of the need to drive cost improvement into their vertical Wolfbone program
in Reeves County and grow/execute into their leveraged cap structure.
In ’13, we expect the company to deliver ~40% oil production growth, while Comstock indicated oil production should increase 40%-60% this
year. For every 5% of incremental oil production growth (~$420 million capital plan), we believe fair value increases ~15%.
Comstock offers modestly stronger CFPS growth (’12-’14E) relative to the sector though trades at ~20% discount (’13E EBITDA). Accordingly, CRK
has ~80% upside to our target price versus ~30% upside for the group. Elevated leverage should subside as an investor concern over the next year
At year-end, Comstock’s net debt-to-EBITDA was ~3.7x, though should fall to almost 3x by the end of this year and decline below 3x in ’14. In ’13, assuming ~$420 million in capital spending, the company’s negative FCF disposition is ~20%, whereas the industry is ~30% FCF negative.
Solid Eagle Ford/Wolfbone results, encouraging industry Wolfcamp test Last quarter, Comstock completed six Eagle Ford wells that commenced
at an average of ~800 Boepd, suggesting a recovery of 500+ Mboe. Since acquiring acreage in Reeves County, Comstock has completed 20 vertical
Wolfbone wells, which have commenced at an average of ~350 Boepd and should recover ~200 Mboe for a cost of ~$4.5 million. A recent nearby industry horizontal Wolfcamp test (~3,600′ lateral, 20 frac stages) commenced at ~950 Boepd, implying a recovery of ~700 Mboe.
Overall capital productivity increases ~5% with Eagle Ford JV The company’s Eagle Ford joint venture 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 per well and receives a one third interest in each well. The joint venture in essence funds ~5% (~$20 million per annum) of the company’s capital spending.

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by jackbassteam on January 21, 2013  •  Permalink
Posted in Eagle Ford, Haynesville Shale, Shale
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Posted by jackbassteam on January 21, 2013

http://amp2012.com/2013/01/21/comstock-resources-target-27/

SandRidge Energy SELL

Permian Basin Museum, Midland, Texas

Permian Basin Museum, Midland, Texas (Photo credit: Wikipedia)

SandRidge Energy

SD : NYSE : US$6.50
SELL 
Target: US$4.00

 

COMPANY DESCRIPTION:
SandRidge Energy is an E&P company focused on the Permian Basin Clearfork/San Andres/Grayburg Carbonates, Oklahoma Mississippian Carbonate and West Texas Overthrust Chert

Investment thesis
SD announced the sale of its Permian Basin assets, other than those related to SandRidge Permian Trust, for $2.6 billion in cash to a privately held entity. The sale price is slightly higher than the value neutral threshold of ~$2.4 billion, though not sufficiently value accretive to change our $4 per share target price.
Permian sale modestly above anticipated value range
SandRidge’s Permian divesture equates to a ~$106K/Boepd production rate multiple, which is above recent precedent transactions that have approximated 90K/Boepd. The assets produce ~24.5 Mboepd (~80% liquids, ~20% gas).
Permian sale only marginally improves SD’s long-term financial standing
The divestiture now provides sufficient liquidity to execute the company’s business plan through late ’15, whereas without the sale, SandRidge was liquidity challenged by early ’14. Pro forma the sale, the company outspends cash flow by ~$1.2 billion per annum from ’14-’17E. Consequently, while net debt-to-EBITDA improves from 4.2x to 3.6x at year-end ’14E, net debt-to-EBITDA remains well in excess of 4x thereafter.

Mississippian economic return meaningfully inferior to other major resource plays

Based on actual capital spending/production performance, the capital intensity of the Mississippian play is comparable to the Bakken/Three Forks, though Mississippian production is ~35% oil while Bakken/Three Forks output is ~90% oil. Accordingly, while the Bakken/Three Forks generates a 10% unleveraged return at ~$100 NYMEX, the Mississippian play requires a ~$150 NYMEX oil price. Two main factors result in the Mississippian play’s lesser economic outcome: 1) a materially lower oil composition and 2) a more elongated production profile as wells commence at a materially lower average rate

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by jackbassteam on December 20, 2012  •  Permalink
Posted in Energy, Shale
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Posted by jackbassteam on December 20, 2012

http://amp2012.com/2012/12/20/sandridge-energy-sell/

Goldman Sachs: The Shale Oil Revolution

Shale Gas Outrage Rally

Shale Gas Outrage Rally (Photo credit: Marcellus Protest)

The Shale Oil Revolution Is Real, And It Will Have A Massive Impact On The Global Economy

We are seeing calls that, thanks to shale drilling, the U.S. is poised to become the world leader in oil production, leading some to begin invoking “Saudi America.”

Today, Goldman Sachs analyst Kamakshya Trivedi, weighed in on the global macro implications of this phenomenon in a note titled: The shale revolution is changing the global energy landscape.

The note actually goes further, talking about how the entire economic landscape could potentially change.

The main impact, they write, is that oil prices will no longer prove a brake on growth:

…shifts in production are gradually loosening the oil price constraint that has been a persistent feature of the global economy. If global demand growth can recover, the risks that it will be choked off by rising oil prices are receding.

This will produce a knock-on effect for household incomes in the West, while blindsiding petro-states:

The drag on household incomes in the developed world from this source should end.

The flipside of the improving terms of trade for these consumers, of course, is a less friendly picture for producers and producing countries, where the sustainability of spending based on sustained high oil prices may come under more scrutiny.

Meanwhile, central banks will be able to shift their focus from containing headline inflation:

Rising energy prices have affected core inflation measures to a degree, influencing the inflation outlook even for central banks, like the Federal Reserve, that have focused more on underlying inflation measures. As a result, lower ongoing energy inflation means that monetary policy may be easier on average than it otherwise would have been.

Finally, here in the U.S., they estimate production will further equalize our trade balance by an amount equal to 1.2% of GDP:

The lion’s share of this would come directly from improving net energy exports, similar to the forecast increase of $136bn for net imports from our Energy team over this period, with a smaller increase coming from improved competitiveness of US manufacturers.

They conclude by depicting just how truly tectonic America’s shale story can be — the third-largest on record:

goldman shale

Goldman Sachs

So everyone’s finally got the message that the Eagle Ford is the place to be. Here’s total well starts through this spring

So everyone's finally got the message that the Eagle Ford is the place to be. Here's total well starts through this spring

EOG Resources holds the most acreage in the play. It’s stock growth over the last two years reflects this privileged position

 

People now think America could become the next Saudi Arabia of oil production

One of big reason is North Dakota‘s Bakken formation, which we showed you around earlier this year.

But another huge factor is the Eagle Ford formation in Texas, which many believe has become the most profitable oil play in the world:

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by jackbassteam on December 5, 2012  •  Permalink
Posted in Bakken, Bakken Shale, Eagle Ford, Energy, Shale
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Posted by jackbassteam on December 5, 2012

http://amp2012.com/2012/12/05/goldman-sachs-the-shale-oil-revolution/

Magnum Hunter Resources Low Risk Target $7

Williston basin outlined. Canadian shield is r...

Williston basin outlined. Canadian shield is red. Phanerozoic basin is greenish yellow. (Photo credit: Wikipedia)

Nov. 28

Magnum Hunter Resources

MHR : NYSE : US$4.00
BUY  Target: US$7.00

COMPANY DESCRIPTION:
Magnum Hunter Resources is an oil-leveraged independent oil and gas company, engaged in low-risk development and exploration in the Williston Basin, the US Gulf Coast and the Appalachian Basin.

Investment recommendation
Following a multi-year repositioning, mainly through acquisitions, MHR has built solid asset bases in three of the leading liquids-rich unconventional resource plays in North America: the Williston Basin (Bakken/Three Forks), Eagle Ford, and wet gas window of the Marcellus.
Positions in the Utica and Pearsall also provide potential upside.

We  believe a renewed focus on the drill bit and likely asset monetizations for the purposes of growing production/cash flow and delevering the balance sheet should act as positive catalysts for the stock.
Investment highlights
 After several delays, the Markwest Mobley gas processing facility should be operational in early December. Having Mobley in service should allow MHR to add ~1,500 Boe/d of Marcellus NGL realizations as well as bring on ~1,800 Boe/d of production currently shut-in due to lack of processing capacity, helping the company achieve its targeted 2012 exit rate of 18,500 Boe/d.
 Interest has been high in MHR’s Eagle Ford assets, as ~15 potential buyers have been through the data room. A transaction is expected to be announced by year end. We believe a deal in the $500M range is possible, with proceeds used to delever the balance sheet, which
would be a nice catalyst for the stock in our view.
Valuation
Our price target of $7 is NAV-driven and based on a ~20% discount to a ~$9/share NAV.

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by jackbassteam on November 29, 2012  •  Permalink
Posted in Energy, Fracking, Natural Gas, Oil, Shale
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Posted by jackbassteam on November 29, 2012

http://amp2012.com/2012/11/29/magnum-hunter-resources-low-risk-target-7/

SandRidge Energy UPDATE – REDUCE

Early portable oil drilling rig on the grounds...

Early portable oil drilling rig on the grounds of the Permian Basin Museum, Midland, Texas. (Photo credit: Wikipedia)

Nov. 12

 

SandRidge Energy  UPDATE

SD : NYSE : US$5.51 
Target: US$4.00 

COMPANY DESCRIPTION:
SandRidge Energy is an E&P company focused on the Permian Basin Clearfork/San Andres/Grayburg Carbonates, Oklahoma Mississippian Carbonate and West Texas Overthrust Chert

Investment thesis
We our reducing our target price $2 to $4 per share due to $400 million lower per annum capital spending, a higher gas composition in the ississippian play and consequently lower oil production outlook. SandRidge’s capital spending/ production relationship suggests the company’s capital intensity is comparable to Bakken/Three Forks players.
Regrettably, a Permian sale is unlikely to improve SD’s long-term financial standing SandRidge announced its intention to sell its Permian Basin assets, other than those associated with SandRidge Permian Trust. The relevant assets produce ~24.5 Mboepd (67% oil, 15% NGLs, 18% gas). Assuming an $80-100K production rate multiple, which reconciles with recent precedent transactions, the Permian assets would be valued at $2-2.5 billion. While the divestiture would provide sufficient liquidity to execute the company’s business plan through ’14, as indicated by anagement, a Permian sale in the value range anticipated leaves SandRidge’s elevated financial leverage unaltered.
Assuming a sale in the indicated value range, SandRidge outspends cash flow by ~$1.2 billion per annum from ’14-’17. If the company retains the assets, SandRidge’s cash flow imbalance is ~$1 billion per year. In either scenario, at year-end ‘14, our projections suggest SandRidge’s net debt-to-EBITDA is ~4x.
Notably, the divestiture is value neutral assuming ~$2.4 billion in proceeds. Mississippian economic yield meaningfully inferior to other major  esource plays Based on actual capital spending/production performance, the capital intensity of the Mississippian play is comparable to the Bakken/Three Forks, though Mississippian production is 35-40% oil while Bakken/Three Forks output is  ~90% oil. Accordingly, while the Bakken/Three Forks generates a 10% unleveraged return at ~$100 NYMEX, the Mississippian play requires a ~$150 NYMEX oil price.

Two main factors result in the Mississippian play’s lesser economic outcome: (1) a materially lower oil composition and (2) a more elongated production profile. As to the second factor, in the case of the Mississippian, the production profile is more protracted as wells commence at a
materially lower average rate.

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by jackbassteam on November 12, 2012  •  Permalink
Posted in Energy, Oil, Shale
Tagged ,

Posted by jackbassteam on November 12, 2012

http://amp2012.com/2012/11/12/sandridge-energy-update-reduce/

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