The past two weeks we’ve done our share of client and company catchups and there are two key themes & questions coming out of conversations. First is how to think about certain groups of stocks, especially as the XOP has essentially flatlined over the past month. Second is regarding shut-in volumes coming back online faster than expected, with every company fielding this question and having different answers. We provide our thoughts on both inside.
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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.
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.
We’re updating estimates post 1Q results. See below with more detail inside.
APA removed its 2020 guidance and will be soon down to no operated activity in the Permian. Based on the 1Q results and other model adjustments, including greater assumed cash cost (LOE & G&A) savings being achieved, we have increased our 2020 EBITDA estimates by ~15%, with half of the increase attributable to the 1Q EBITDA beat. However, our 2021 EBITDA estimate only increases by 1%, and our price target remains unchanged at $11/share.
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.
MUR reported an inline 1Q and is doing what’s needed to get through the downturn, including further reducing capex and closing the El Dorado office. The legacy will live on through the asset base that remains unique against other small cap E&P peers, but it also has greater uncertainty given its diversity, the need for exploration to keep long-term volume visibility offshore, and an outlook showing all onshore activity getting shut down for the remainder of 2020. Peer Perform.
WPX reported a positive 1Q update and while they left the forward outlook somewhat uncertain, the scenario planning points a better than expected 2021. In particular, we believe the 2021 maintenance capex levels relative to the production outlook were better than expected and will support a cash flow neutral to slightly positive FCF outlook at $35/bbl WTI. Knowing WPX, there’s likely upside over time to these views, especially if they can extract more value out of Felix in the current downturn. Outperform.
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