CDEV has suspended all D&C activity and significantly cut the 2020 budget to $240-290MM, while suspending all other 2020 guidance. Following the quarter, CDEV announced its $225mm sale to WaterBridge Resources has been cancelled and the $10mm purchase price deposit is currently being held in escrow. Also, CDEV recently announced the results of its debt tender and will exchange roughly $254mm of outstanding debt for $127mm of the new 8% 2025 Second Lien Notes. Our 2020/21 capex estimates fall by 23%/37%, lowering our 2020/21 production estimates by 8%/9% and our 2020/21 EBITDA estimates by 8%/5%. Our price target remains $0.50/sh.
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For the week our E&P Index was +10.3% vs. the S&P500 +3.2% and WTI +12.6%. In our conversations with investors and companies this past week, there was one big concern that consistently came up as WTI got back over the $30/bbl mark. We touch on this inside, along with other concerns we have right now based on the forward plans each company outlined during 1Q earnings.
For the week, our E&P Index was -11.7% vs the S&P500 -2.26% and WTI +19%.
This past Thursday we hosted a call with the Moody’s Energy Team going over commodity and sector views, along with some individual stock thoughts. The virtual chat went on for an hour and 15 mins, but it could have gone on much longer as they have a lot of insight on the credit profiles across 240ish issuers. Overall they remain cautious on Energy despite factoring in a recovery to $40/bbl WTI next year. See our takeaways inside.
We reviewed the proxy materials for E&Ps under coverage to see how management teams were compensated. Most important to us during this review was looking at the key drivers, how they have changed over the past two years, and what’s to come for 2020, more so than absolute pay. There’s still more progress to be made, but overall, we can see that boards have responded to investor pressure to improve compensation structures by making numerous adjustments to both annual and long-term payouts.
Happy Sunday and Happy Mother’s Day! For the week our E&P Index was +5.6% vs. the S&P500 +3.5% and WTI +25%. It’s been a strong three-week rally for the E&Ps through earnings season and while there’s still plenty of execution risk in these start and stop development programs, we thought the visibility provided through YE20 was better than expected. Within, we outline our company by company thoughts from this past week.
It was another big bounce back week for the sector, lead again by the small caps and beta oil producers as thoughts of a sector bailout of sorts and the up-tiering of the debt stack provided a lifeline. We get some bottom fishing/rotation effect, but we’re still not chasing the rally, as the 100%+ stock moves over the past month have done so in the face of the 2021 curve moving lower and we believe credit holders will push back on the new secured offerings. Additionally, inside we provide some company by company thoughts off the E&P reports last week and one-liners into the 1Q updates this week.
COP reported an operationally good 1Q with production coming in 2% above expectations. However, the key update was that May voluntary operated curtailments are now expected to be 265mbpd gross, up from the 225mbpd prior guidance, and will be extended into June at 460mbpd gross as an additional 90mbpd in the Lower48 and 100mpd in Alaska are further curtailed. With the cuts potentially extending into July and non-op, infrastructure, and government related curtailments likely coming on top of this, the near-term outlook remains uncertain for COP, but it’s the right economic decision with WTI and ANS below $20/bbl, and COP has the balance sheet to withstand this period. Remain Outperform
Ahead of 1Q earnings season, we are making estimate tweaks and adjusting price targets. Additionally, we’re providing refreshed company-by-company investment thesis, financial snapshots, and key questions ahead of conference calls where we anticipate “uncertain” to be the top word found in transcripts. Overall, E&P equities seem to have found some footing, but the strong two-week stock performance against the drop in the 2021 curve leaves valuation a challenge against the backdrop of limited visibility. We’re not chasing the rally as the equities price in $40/bbl WTI next year.
It’s becoming increasingly clear that producers will have to or be forced to shut-in volumes to differing degrees and for an unknown period as storage increases. COP made that pretty clear this week, so inside, we outline some thoughts around what may actually happen when the tanks fill up. Also, we went through the JPM, GS, and WFC transcripts looking for anything oil and gas related. Interestingly, there wasn’t much in the prepared remarks and no Q&A specifically focused on oil and gas despite the potential asset grab that was reported this week. However, the limited commentary was enough to tell us that the banks are going to be cautious with the sector. Last, a new thought came in this week that may cause some financial concern for E&Ps. Is there any counterparty risk that all the hedge benefits E&Ps are going to receive this year get paid out?
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