RSP Permian (
) may not rank among the largest players in the oil-rich Permian
Basin of West Texas.
But that hasn't stopped investors from gushing over prospects
for the newly public independent oil and natural gas
RSP Permian stock has risen 43.6% from its January IPO price.
The company can boast the 11th best stock performance of the 92
IPOs priced this year, according to Cindi Profaca, managing
director of IPOfinancial.com.
RSP has the vast majority of its acres located on large
contiguous acreage blocks in the core of the Midland Basin, a
subbasin of the Permian Basin, primarily in the adjacent counties
of Midland, Martin, Andrews, Dawson and Ector.
Since its inception in 2010, RSP has participated in drilling
more than 300 vertical wells in the Wolfberry shale area of the
basin and has served as the operator of over 180 of those
In 2012, it shifted its primary focus to horizontal drilling,
which it believes offers more "attractive returns," on most of
its acreage, according to a company filing with the SEC.
RSP is one of a small subset of players, such asPioneer
Natural Resources (
) andAthlon Energy (
), operating exclusively in the Midland Basin, says Johnson Rice
& Co. analyst Charles Meade.
RSP's exclusive focus on the Midland Basin has been a draw for
"It's a pure play in the Midland Basin," said Meade. "It's one
of the small handful of ways investors can gain exposure to the
hottest part of the Permian Basin, particularly with horizontal
Going After Gains
Horizontal drilling is a technique used in certain formations
where a well is drilled vertically to a certain depth, then
drilled at a right angle within a specified interval.
"RSP is among those players in the Midland Basin that is using
horizontal wells with multistage completions to get oil and gas
out of zones that were productive vertically but not at the same
scale," said Meade.
He says RSP has been a leader in the horizontal development of
the Spraberry and Wolfcamp shale formations.
RSP successfully drilled and completed the first horizontal
well targeting the Middle Spraberry and Lower Spraberry shales,
and it's among the first operators in the core of the Midland
Basin to successfully drill and complete a well targeting
Since initiating its horizontal drilling program, it's
participated in the drilling and completion of 40 horizontal
wells, 17 of which it operated as of the end of 2013.
As of Dec. 31, RSP had 33,933 acres. That's a far cry from the
643,000 that Meade estimates Pioneer has in the Permian Basin and
the 102,000 acres he estimates for Athlon. But RSP's acreage
falls "in the most highly prospective and de-risked portion of
the Midland Basin," Meade wrote in a report.
"Proven horizontal targets in the immediate area include
Wolfcamp B, A and D as well as Middle and Lower Spraberry
shales," he said. "In 2014, RSP will focus the bulk of its
activity on the most attractive of these zones, the Wolfcamp B
and Lower Spraberry shales."
In a year-end filing with the SEC, RSP said it's seeing
"strong horizontal well results. Horizontal Wolfcamp results
(are) tracking expectations, and early horizontal Spraberry
results (are) outperforming type curve and economic returns look
as strong as the Wolfcamp."
Room To Grow
Renaissance Capital analyst William Preston says a big draw
for investors is the fact that RSP is "in the early stages of
accelerating their production growth, and they have the ability
with their financial position to support near-term results."
Preston added: "I definitely think investors can buy into this
strong production growth. It comes down to an execution strategy.
They're not a very large or mature E&P (exploration and
production company). But they're rapidly expanding the rigs and
locations where they're drilling."
In its year-end SEC filing, the company noted it's
accelerating its drilling program. At the time, it was running
three operated horizontal rigs and one operated vertical rig in
the Midland Basin.
A fourth operated horizontal rig and second operated vertical
rig will arrive in the second quarter.
RSP has also recently acquired additional acreage in the
Midland Basin that has helped it expand the drilling inventory in
areas of its operations.
"These opportunistic acquisitions expand our horizontal
inventory in properties that are located primarily adjacent to
our existing leasehold, further blocking up contiguous acreage in
our area of operations," RSP CEO Steve Gray said in a 2013
year-end report filed with the Securities and Exchange
Commission. "These acquisitions were accomplished using our
deep-rooted relationships within the Permian Basin, which we
believe is a core strength of the RSP organization and will lead
to future attractive acquisition opportunities in our core
RSP was formed by the management team and an affiliate of
Natural Gas Partners, a family of energy-focused private equity
investment funds. Meade says RSP's management team has been
working in the Permian Basin for decades.
Followers are upbeat about the company's prospects.
Analysts polled by Thomson Reuters expect 2014 earnings to
spurt 63% to 91 cents a share. They see a 45% gain in 2015 and a
51% increase in 2016.