Credit Suisse Says: "Declining Capital Efficiency Offsets Inventory Discussion; Revising Estimates and Raising Target Price to $55 (from $52)"
"Raising TP to $55 (from $52). We revise our 'PD Plus' NAV-based target price to $55 (from $52) due to improving Pronghorn performance and updating for YE12 PD reserves. Based on updated guidance, we revise our 2013/14 EPS estimates by 0%/-3% to $5.11/$6.07 and introduce our 2015 EPS estimate of $5.14.
"Attempting to Allay Inventory Concerns. WLL provided a detailed project inventory list in an attempt to address investor concerns regarding the running room left in at the company. Specifically, the company noted that it has 3,126 gross (1,249 net) primary drilling locations left in the Williston, which should equate to a 12-13 year inventory at the current development pace (20 rigs). Although we believe that it is still early to give full credit for the 1,174 gross locations to Western Williston (particularly at Missouri Breaks) and 588 gross locations to 'other' Williston, discounting those specific inventories by 50% still gives WLL 8-9 years of inventory.
"Declining Capital Efficiency. The 2013 capital budget of $2.2B is expected to drive 12-16% yr/yr production growth to 33.8-35.0 MMBoe from 30.2 MMBoe in 2012. Current guidance implies that WLL can grow production at ~$188K per flowing boe vs. 2012, when the company grew production from 67.9 MBoe/d to 82.5 MBoe/d, or $144k per flowing Boe. WLL projects that it will outspend cash flow by ~$400MM (vs. our estimated ~$600MM funding gap at the futures strip).
Valuation. WLL trades at a 14% discount to our revised 'PD Plus' NAV of $55 vs. a 13% discount for its peers at LT $82/Bbl oil and $4.50/Mcf natural gas. On multiples, WLL trades at 4.6x 2013 and 4.4x 2014 unhedged EBITDA at the futures strip vs. 6.0x and 4.4x for its peers, respectively."
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
