瑞信-美股-石油与天然气行业-北美石油与天然气勘探与产品：2019年Q2中小型企业预览-2019.7.17-40页 (2).pdf

DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.17 July 2019 Americas/United States Equity Research Oil&Gas Exploration&Production E&P Research Analysts Betty Jiang,CFA 212 325 6259 betty.jiangcredit- Chris Baker,CFA 212 325 6375 chris.bakercredit- SECTOR REVIEW 2Q19 SMID E&P Company Preview Despite 2Q pricing weakness,E&Ps are showing solid operational performance and staying disciplined on capex.We expect our SMID-Cap universe to deliver 2Q production largely in-line with consensus,but CPFS/EBITDX estimates 5%/3%below Street primarily on weaker gas/NGL realizations.2Q capex is also biased 3%above Street on average.While majority of our 9 misses for 2Q is on pricing,we see the biggest delta for XEC with below-street cash flow carrying through into 2H19 and 2020.SRCI is the sole notable oil production miss while we see QEP beating on oil volumes but not on cash flow.On the positive side,we only see 2 beats:CDEV stands out on gas realization thanks to marketing agreement while efficiency gains are biasing activity/production higher.EQT should beat cash flow on tighter gas differential.Lastly,despite ho-hum 2Q updates,we see a positive set up for WLL and WPX with early indication on 3Q production increasing confidence level on 2H19.Our companion preview covers sector themes for the CS U.S.E&P universe.Amidst high investor pressure for discipline,we believe any capex hike is off the table in 2019.Given the commodity volatility in the last few months,we believe managements wont even entertain the possibility of higher activity in 2H19.While efficiency gains appear to be accelerating activity forward(reason for our higher 2Q capex for XEC,LPI,CDEV,CLR,PDCE),we expect E&Ps to stay firm on capex and is more likely to layoff rig/crew in the back half of the year to stay within budgets.Already,PDCE&LPI are talking about frac holidays later in the year.The implication of lower 2H19 activity on 2020 outlook will be a key focus this quarter.Buyback in focus for those with strong balance sheets otherwise,free cash flow is going toward debt reduction.There will be a keen focus on pace of buyback from FANG&CLR,companies that recently initiated share repurchase programs.We expect PDCE to begin buying back stock in 3Q with organic FCF in 2H19.Meanwhile,we also see reduced investor tolerance for E&P leverage with tolerable threshold at 10%pro forma production CAGR,consistent with growth expectation for the two entities.In 2020,CPE expects to run 7 rigs in Permian(consistent with 2 rigs for CRZO and 5 for CPE)and 2 rigs in Eagle Ford.Preliminary 2020 capex is estimated at$1.0-1.1bn(plus$100MM for capitalized costs),just shy of the combined capex of$1.25bn using consensus estimates as CPE expects to realize 5%cost saving in the Delaware.50%of the PF 2020 capital is allocated to the Delaware with the remaining split between Eagle Ford and Midland.The shift to large pad developments(going from 2-well pads in 2019 to 4 in 2020 and 6 in 2021)also introduces greater execution and timing risks to the program.Management also highlighted annual synergies of$100-$125MM,2/3 of which comes from operational synergies and the remaining from G&A.CPE expects to realize 50-75%of the identified synergy in 2020.Free cash flow will need to go to debt reduction,which could be accelerated by non-core asset sales.With CRZOs free cash flow from the Eagle Ford,we now see the pro forma company generating$58MM FCF in 2020(2.7%yield)and$89MM in 2021(4.0%)while delivering 10%production CAGR through 2021.CPE had estimated$100MM in 2020,though we note 2020 strip dropped$3/Bbl since deal to$55/Bbl.Given recent NGL/gas strip price weakness,we estimate CRZO was already 2.5x levered in 2020,increasing CPEs leverage from 2.3x pre-deal to 2.4x post-deal.As such,unless strip prices improve,we believe management needs to deliver on asset sales and potential water monetization to de-lever the pro forma entity.Given Eagle Ford is responsible for bulk of the medium-term FCF,CPE is unlikely to exit the area at least in the next several years.2Q19 Neutral;CSe EPS/CFPS of$0.20/$0.51 vs cons.of$0.20/$0.52 Little surprise given 2Q pre-release;production largely came in as expected.With the CRZO deal,CPE pre-released 2Q production of 40.0-40.5 MBoed with 77%from oil.Total production was 2%above consensus,but oil volumes are in-line given Street oil mix of 78%.CPE also guided to capex of$165MM,now 6%below consensus.Wed note 2Q LOE was$6.40/Boe,down only slightly from$6.63/Boe in 1Q,despite completion of maintenance work on XEC assets that began in 1Q(which was expected to help improve per unit LOE).CSeBbg Cons.CSe vs.Cons.Guidance2Q19Prodn(MBoed)40.339.5+1.9%40.0-40.5Oil(MBbld)31.030.9+0.4%30.8-31.2EBITDX($MM)$119$119-0.7%EPS$0.20$0.20-0.1%CFPS$0.51$0.52-2.3%Capex($MM)$164$176-6.9%162.5-167.5Mid.Net Completions7Del.Net Completions33Q19Prodn(MBoed)38.538.5-0.1%Oil(MBbld)30.530.4+0.1%EBITDX($MM)$127$122+4.4%EPS$0.24$0.22+8.8%CFPS$0.55$0.52+5.3%Capex($MM)$140$129+8.9%Mid.Net Completions5Del.Net Completions8Full Year 2019*Prodn(MBoed)45.838.0-39.5Oil(MBbld)35.130.2-30.6EBITDX($MM)$550EPS$0.85CFPS$2.20Capex($MM)$688$595-625*Net Completions48(Mid/Del:27/21)47-49Full Year 2020*Prodn(MBoed)115.8Oil(MBbld)80.1EBITDX($MM)$1,404EPS$1.25CFPS$3.10Capex($MM)$1,204Mid.Net Completions27Del.Net Completions46Source:Company data,Credit Suisse estimates,Bloomberg*Expects 60%of FY19 capex in 1H19;Incl.capitalized expenses.*Estimates reflect recently announced CRZO acquisition,which is expected to close in 4Q19.Stale consensus,doesnt yet reflect CRZO acquisitionStale consensus,doesnt yet reflect CRZO acquisition 17 July 2019 E&P 8 Centennial Resources(Neutral)Key Considerations 2019 activity biased higher given efficiency gains,thus we see upward bias to production with no change to FY capex.1Q activity was ahead of plan due to efficiency gains and we believe continued improvement likely biases activity higher.As such,we forecast 74 completions for the year,near the high end of their 65-75 FY target.The higher activity combined with potentially better than guided well productivity(as seen in 1Q19)puts CDEV in a strong position to deliver FY19 production near the top end of guidance.We forecast 2Q total prodn+2%vs.Street assuming 18 completions,and note that 1Q was flattish QoQ with 10 of the 20 completions coming on in March.While we expect capex to also be in the upper half of the guidance range,we dont expect change to the FY budget.Debt-to-cap of 30%remains the hard line in the sand governing capital spend leaving persistent outspend(at$55/Bbl oil)the biggest issue for the stock.While the company is being managed toward higher oil prices based on Mark Papas constructive macro view(current plan is to reach FCF in 2022 assuming$65-$70/Bbl),mgmt.has clearly stated that debt-to-cap will not exceed 30%.At strip prices,we see debt-to-cap staying at 27-29%with CDEV maintaining 6 rigs through 2020.With CDEV coming off the steep decline due to its relatively young well vintage,it should also see greater improvement in PDP decline in 2020 vs.2019,lowering maintenance capex next year.As such,while production is essentially flattish this year,wed expect it can grow 8%next year for a similar YoY capex budget albeit still outspending by$260MM at strip prices.Marketing agreements resulting in differentiated 2Q gas realization.CDEV has limited exposure to Waha prices given firm sales and FT agreements.Beginning in 2Q,70%of its gas will be sold at Mid-Continent based pricing,materially limiting its exposure to depressed pricing at Waha.We forecast CDEVs 2Q realized gas differential at($0.80)/MMBtu,likely the best amongst Permian operators.The cost of the FT is already embedded in the GP&T guidance.On the oil side,CDEV guided realization at 87%-93%of WTI for remainder of 2019 and 93-97%WTI in 2020,vs.its Permian peers forecasts of at or above WTI in 2020+.Unlikely to change M&A view given the recent strength in oil prices.CDEV believes it has 20 years of inventory at 6 rigs,a more than adequate degree of running room even with an activity ramp.The company aims to replenish inventory via small bolt-on acquisitions and organic delineation(i.e.Bone Spring sand).Thus,any transaction needs to be accretive to portfolio quality and fit into the existing development program right away.Management is also not a strong believer in merger of equals,and is more interested in asset level transactions.2Q19 Beat;CSe EPS/CFPS of$0.12/$0.55 vs cons.of$0.11/$0.54 2Q EBITDX beat on modestly higher production,better gas realization,and better GP&T cost.We see EBITDX of$168MM,4.2%ahead of consensus at$161MM.We forecast 2Q oil production of 40.9 MBbld,slightly ahead of Street at 40.7 MBbld.We also assume GP&T at the low-end of FY guide as CDEV should realize some gas FT mitigation,albeit below the$7.5MM in 1Q.We forecast capex of$229MM,8%ahead of Street at$212MM,with our 18 gross completion forecast reflecting activity getting pulled forward again by efficiency gains.CSeBbg Cons.CSe vs.Cons.Guidance2Q19Prodn(MBoed)72.671.2+1.9%Oil(MBbld)40.940.7+0.6%EBITDX($MM)$168$161+4.2%EPS$0.12$0.11+4.5%CFPS$0.55$0.54+2.0%Capex($MM)$229$212+7.9%Gross Completions183Q19Prodn(MBoed)71.170.7+0.7%Oil(MBbld)41.040.8+0.4%EBITDX($MM)$157$149+5.3%EPS$0.10$0.08+33.5%CFPS$0.51$0.51+0.3%Capex($MM)$216$205+5.5%Gross Completions18Full Year 2019Prodn(MBoed)71.270.7+0.7%61.5-70.5Oil(MBbld)40.740.8-0.2%36.5-41.5EBITDX($MM)$643$607+5.9%EPS$0.45$0.34+31.5%CFPS$2.10$2.04+2.9%Capex($MM)$875$863+1.4%$765-925Gross Completions7465-75Full Year 2020Prodn(MBoed)76.872.7+5.7%Oil(MBbld)44.744.4+0.7%EBITDX($MM)$714$745-4.2%EPS$0.55$0.60-9.0%CFPS$2.35$2.43-3.0%Capex($MM)$894$887+0.8%Gross Completions75Source:Company data,Credit Suisse estimates,Bloomberg 17 July 2019 E&P 9 Cimarex Energy(Neutral)Key Considerations Facing pricing pressure on multiple fronts,outweighing positive operational momentum.Gas/NGL weakness is not a surprise in 2Q,however the magnitude of impact on XECs cash flow is much greater than peers given its production mix is 27%NGLs and 42%gas.XEC is among the most exposed to Waha pricing;even though it has flow assurance via marketing agreements,we expect it to realize just a sub-zero Permian gas price in 2Q.On NGLs,we expect them to realize 21%of WTI in 2Q,down from 30%in 1Q,and would note Conway continues to trade weaker than Mt.Belvieu.Lastly,API gravity deduct is also a growing concern for pricing across the sector.XEC has a marketing contract with Plains for its higher API(50 degree)crude in Culberson thats renegotiated annually.While theres no gravity deduct currently,some discount could surface at the next renegotiation once current term ends in Sept 2019.Mid-Con crude is similarly exposed with API gravity even higher at mid-50s.Permian drives mid-year weighted 2019 oil production growth with bias toward activity acceleration due to efficiency gains.Operations are off to a strong start this year with efficiency gains pulling forward activity(and capex)a bit ahead of schedule.As XEC noted on 1Q call in early May,17 of the 21 net wells in the Permian came on already.This could bias 2Q production higher vs.guidance of 79.5-85.5 MBbld,although Street is already nearing the high end at 84.2 MBbld.We forecast 83.0 MBbld(+4.6%QoQ)with growth driven by 31 net completions(22 in Permian),a substantial increase from 8 in 1Q.The 2Q activity ramp is more expected to benefit 3Q when we should see the greatest sequential growth(+5.6%QoQ on our estimate of 29 net total completions).Our FY19 oil forecast of 84.7 MBbld puts us just ahead of the midpoint of the guidance range of 80-88 MBbld but 1%below Street at 85.5 MBbld.3-year outlook a scenario,not a plan biasing 2020 production&activity lower vs.Street.In light of broader pricing weakness,our 2020 EBITDX is 15%below Street using strip prices and we see XEC with a slight outspend next year post dividend while growing oil production by 9%.While we dont expect XEC to provide 2020 outlook,we believe XEC would like to show some level of FCF generation,and thus open to a lower growth rate in a lower price environment.XEC emphasized that their 3-year outlook of$1.5bn capex supporting a 15%2020-2021 oil production CAGR should be viewed as a sensitivity scenario,not a plan.Based on the 15%outlook,XEC expected to generate cumulative FCF of$100MM at$50/Bbl and$600MM at$55/Bbl.In comparison,we see XEC reaching cash flow neutrality in late 2021 at current strip.Wed also note that capital allocation split is likely to change with Mid-Continent staying at 15%of total D&C budget.2Q19 Miss;CSe EPS/CFPS$1.00/$3.21 vs cons.$1.28/$3.62 Weak pricing drives CFPS/EBITDX miss;capex also biased above Street.2Q oil of 83.0 MBbld puts us 1.3%below Street at 84.2 MBbld,and just ahead of the midpoint of their guidance range of 79.5-85.5 MBbld.Our production outlook assumes 2 MBbl of REN shut-in volumes came back online toward the end of 2Q,with 3Q19 representing the greatest QoQ growth quarter for 2019.We assume capex of$425MM,up 10%sequentially as a result of the activity ramp in 2Q,putting us 12%above Street at$378MM.CSeBbg Cons.CSe vs.Cons.Guidance2Q19Prodn(MBoed)269270-0.4%263-275Oil(MBbld)83.084.2-1.3%79.5-85.5EBITDX($MM)$349$419-16.8%EPS$1.00$1.28-22.0%CFPS$3.21$3.62-11.4%Capex($MM)$425$378+12.3%Perm.Net Completions2221Mid-Con Net Completions993Q19Prodn(MBoed)282276+2.4%Oil(MBbld)87.788.3-0.7%EBITDX($MM)$391$428-8.8%EPS$1.22$1.43-14.5%CFPS$3.61$3.97-9.1%Capex($MM)$330$367-10.1%Perm.Net Completions2522Mid-Con Net Completions44Full Year 2019Prodn(MBoed)273269+1.6%260-275Oil(MBbld)84.785.5-1.0%80-88EBITDX($MM)$1,519$1,665-8.8%EPS$4.90$5.88-16.7%CFPS$14.20$15.42-7.9%Capex($MM)$1,442$1,438+0.3%$1,410-1,520Perm.Net Completions6665Mid-Con Net Completions1817Full Year 2020Prodn(MBoed)283280+1.1%Oil(MBbld)92.295.2-3.1%EBITDX($MM)$1,657$1,953-15.1%EPS$5.50$7.71-28.6%CFPS$15.35$18.26-15.9%Capex($MM)$1,520$1,515+0.3%Perm.Net Completions88Mid-Con Net Completions16Source:Company data,Credit Suisse estimates,Bloomberg 17 July 2019 E&P 10 Continental Resources(Outperform)Key Considerations Recent buyback announcement sends a strong message;buyback pace will demonstrate commitment level.Last month CLR announced a dividend initiation and$1.0bn buyback through YE20,with the latter coming as a surprise given mgmts long-stated preference for dividends due to the low float.Besides the actual buyback,the announcement served to counter some of investors key concerns by 1)removing risk of a capex hike in 2H19;and 2)affirmativel