Encana’s (ECA +2.3%) takeover of Athlon Energy (ATHL +24.6%) is good news for Diamondback Energy (FANG +2.3%) and Energen (EGN +2.2%), according to analysts at Sterne Agee.
The acquisition implies a value of $98/share for FANG, Sterne says, based on FANG's 85K net acre leasehold position, estimated 19.8K boe/day of Q3 production, $585M of assumed debt, and a $1.7B market value for the Viper Energy Partners (NASDAQ:VNOM) units it owns.
The firm sees even more upside for EGN, as ECA’s price implies a value of $102/share for EGN, based on 180K net acres across both sides of the Permian Basin, 48K boe/day of Q3 Permian Basin production, 132M cfe/day of Q3 San Juan Basin, and $835M of pro forma net debt as of Sept. 30.
Permian producers Laredo Petroleum (LPI +5%), Parsley Energy (PE +5%) and RSP Permian (RSPP +4.8%) also are higher following the acquisition news.
A new research note from the Credit Suisse energy team points out that West Texas crude oil could drop into the low $80s, but the top companies in the booming Permian Basin have the ability to continue to make money, and they have sold off dramatically.
Leading the firm's top five Permian picks is Diamondback Energy (FANG -1.6%), a strong performer despite the selloff; FANG's average well produces 80%-90% liquids, which results in high margins, and the company could be a potential takeover candidate given its high quality assets in west Texas.
Credit Suisse also likes Athlon Energy (ATHL -0.3%), Concho Resources (CXO +0.1%), Pioneer Natural Resources (PXD -0.8%) and Cimarex Energy (XEC +0.2%).
Athlon Energy (ATHL +3.2%) reported the best horizontal well in the eastern Midland Basin with its latest well in Howard County as part of its operational update late yesterday, Topeka Capital says, prompting the firm to raise its production trajectory and its target price for Buy-rated ATHL shares to $64 from $60 (Briefing.com).
Additionally, ATHL reported a top-tier Wolfcamp B well and an above average initial Lower Spraberry well in the basin.
ATHL's eight total horizontal wells are outperforming their type curves by nearly 70% with the wells tracking more than 90% rate of returns on average at $90/bbl oil, which Topeka says is above its type curve average of 36%.
Athlon Energy (NYSE:ATHL) announces a public offering of 12.5M common shares by certain selling stockholders that are funds affiliated with Apollo Global Management; the underwriters have a 30-day option to purchase up to an additional 1.875M shares.
Also, ATHL says Q2 average daily production reached a record high of 21.9K boe/day, up 96% Y/Y; output averaged 25K boe/day during June.
Says its second horizontal Wolfcamp A well was completed and achieved a peak three-phase 30-day rate of 1,234 boe/day (82% oil).
Athlon Energy (ATHL +2.1%) is initiated with a Buy rating and $52 price target at Mizuho, which calls the company a pure play on the Permian Basin with ~134K net acres in the Midland Basin.
ATHL's transition to more capital efficient, higher rate-of-return horizontal wells from vertical wells combined with nearly 100% production growth this year will drive share prices higher, Mizuho says, adding that further de-risking of horizontal plays likely will yield upside to its NAV.
Parsley Energy (PE) is the latest fracking company to enjoy a big IPO, jumping 19.7% so far in its first day of trading after selling 50M shares at $18.50 each to raise $925M, topping expectations for a 43.9M-share offering fetching $15-$18/share.
PE drills shale formations in the Permian Basin area in Texas, and Permian peers Diamondback Energy (FANG) and Athlon Energy (ATHL) have seen their shares rally 38% and 43% YTD respectively.
Oil and gas drillers already had raised $2.2B in U.S.-listed IPOs this year; Rice Energy (RICE) has rallied 44% since its January IPO and RSP Permian (RSPP) has gained 42% since debuting in the same month, although EP Energy (EPE) is off 1.9% since it went public.
Athlon Energy (ATHL) announces offerings for 11M shares of common stock and $500M in senior notes to fund potential and pending acquisitions and for general corporate purposes.
Separately, ATHL says Q1 production reached a record quarterly high of nearly 17K boe/day, up 71% Y/Y, above the high end of its earlier guidance range; approves an increased 2014 capital budget for drilling expenditures of $700M.
LINE has ~55K Midland net acres that are on the selling block, and Citi says it may be able to acquire $2B-plus in mature producing properties in exchange for its Permian assets, based on the ATHL transactions; a sale/swap of LINE's Permian properties and a subsequent investment of proceeds into MLP-suitable assets should lower the overall decline rate of the partnership’s asset portfolio.
Yet Citi still rates the stock Neutral because it believes Linn will need another large equity financed acquisition or an equity offering to get closer to the targeted 3x leverage.
The firm sees the assets as a very attractive package, with a large portion located in Martin County, Tex., where typical 7,500-ft. lateral wells are projected to produce 800M boe; based on Topeka's estimates, the acquisitions and acceleration are accretive to earnings, cash flow and RNAV estimates.