This week's consensus storage estimate is a -14Bcf draw, compared to a +34Bcf injection in 2016 and the 5-year average of a +12Bcf injection. At the consensus estimate, this week’s storage would be ~97Bcf below the 5-year average, and given the low/high range of injections for the next three weeks (based on 10-year average injections), total storage should stand between (~235)Bcf below and ~89Bcf above the 5-year avg. by the end of November.
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A dual focused DJ & Delaware producer, PDCE is amongst the “Nuevo-Permian” wave of E&Ps that entered the basin over the past 18 months to secure its slice of the future of U.S. onshore oil development. However, unlike many of these producers that completely transformed their asset bases and risked the balance sheet for Permian growth, PDCE’s outlook remains a balance between two basins and comes with a lower leverage profile (<2x over the next three years). There are pros and cons to this strategy, and although PDCE’s current three-year outlook sets up well, there is still a Delaware Basin learning curve they are going up against and closing the valuation gap to the Permian peers will be a challenge with the DJ Basin still very much in the picture. Peer Perform.
Known more for its CEO Mark Papa’s legacy than its own short track record, CDEV is a young and uniquely constructed E&P positioned to be one of the fastest growing pure-play Permian producers through the end of the decade. Spearheaded by one of the industry’s most well-regarded management teams, CDEV’s foundation was carefully designed to include the critical elements necessary to thrive in today’s commodity environment: highly productive acreage, little to no debt, and exceptional oversight. While CDEV’s stated long-term goals are both admirable and achievable (reach ~60mbbl/d of oil by 2020, become mid-cap technical leader, lowest unit costs among peers), we keep coming back to the acreage position and management as CDEV’s key differentiator as investors continue to push for a more rigorous focus on shareholder value creation. Outperform.
One of the newest to the public market scene with a January 2017 IPO, JAG is a pure play on the Southern Delaware Basin and holds a strong mix of growth, margins, management, financial leverage, and management ownership (CEO holds ~3.2% of shares) that portends a solid future. We like the set up and the acreage has been largely de-risked with upside from new formation testing, but as an early stage producer with a massive amount of growth expectations (2017 volumes +215% y-o-y) and the service market already playing fits with the outlook, we want to see numbers start moving up relative to Street expectations before getting more positive. There is a lot to like and valuation is reasonable relative to Permian pure plays, but we initiate at Peer Perform.
Following a year long Permian A&D binge that saw >$45Bn of transaction value changing hands, there has been little time to digest one of the biggest crude oil resource bases in the world. Volumes have been ramping through 2017 and growth is slated to continue at ~800mbpd in 2018 with the broader use of big data and more precise targeting (geosteering, frac optimization, local sand) helping to lower the Permian’s place on the global supply curve. There are resurgences underway elsewhere, but the Permian remains the centerpiece for U.S. crude oil supply.
Wolfe Research's SMID CAP E&P analyst, Josh Silverstein, hosted a webcast on operations in the Permian Basin and new coverage.
One of the best transition stories over the past four years, WPX has consistently outperformed expectations and in our view has one of the best set-ups heading into 2018, pushing them to Top Pick status alongside FANG and ECA. The best updates during the 3Q reporting season showed producers beating crude oil expectations, increasing 2017 oil guidance, and pushing 2018 oil estimates higher while showing capital discipline to support the potential for positive free cash flow generation in 2019. WPX gave you all of that plus a strong operational update across the board and a ~$170MM asset divestiture that de-risked the balance sheet. Now trading at 5.7x 2019 EV/DACF and ~$70/flowing boe vs. 6.4x and ~$100/flowing boe for the full oil focused peer group, WPX gives you a Permian growth outlook (25%+ 2018/19 volume growth) at a discounted valuation and a multi-year outlook that is likely to generate upside from current expectations. See our positive view in four charts inside. PT moves to $15.50/sh from $12.50/sh.
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