Post by
JackDeeValentin on May 13, 2016 10:06am
Several compelling points; mgmt discount but assets top tier
Upgrade to BUY; Why now? • Valuation. RMP is trading at 4.3x our 2017E EV/DACF, which is a considerable discount to the group at 7.1x. With the recent fall in share price our 12-month target of $2.00 target now represents a 67% return. •
Gold Creek potential. As highlighted in Figures 1 through 4, we believe RMP's land base offers considerable upside potential. • Based on offsetting well results, our initial type curve for the play suggests IP30's of ~300 bbl/d of oil, and ~2mmcf/d of gas, with recoveries of ~700mmboe. • Based on a well cost of $4.4mm, we calculate a NAV/well of $4.4mm (BT@10%) and an IRR of 40%. •
With 48 sections RMP may have up to 192 drilling locations. We are crediting RMP with a 5% of the unrisked value potential initially, which contributes $18M ($0.13/ share) to our valuation •
Improvements at Waskahigan. Since RMP adjusted its completion methods in late 2014, its Wask wells are showing a considerable improvement (Figure 7). As a result we have moved our type curve higher for the play, increasing our NAV/well from $1.6mm to $2.1mm (BT@10%). •
NAV support. Following the company's recently filed AIF, we updated our 2P NAV for the company, which we now calculate at $1.55/share, with a PDP NAV of ~$1.00/share. With the stock at $1.20, we believe the PDP NAV provides good downside protection •
Balance sheet. RMP's net debt is down to $96mm, with a bankline of $150mm. The company is entering its spring bankline review, and we anticipate its line is likely to be pulled back similar to what we have seen with peers. Still, with a 2016E D/CF of ~2.3x, RMP's balance sheet remains in a strong position versus peers at 4.5x.