RSP Permian (RSPP,
$39.84): “Messing with this Texas Oil and Gas Exploration and Production Company"
By: Casey McClelland, AIM Student at
Marquette University
Disclosure: The AIM Equity Fund currently
holds this position. This article was written by myself, and it expresses my
own opinions. I am not receiving compensation for it and I have no business
relationship with any company whose stock is mentioned in this article.
Summary
• RSP Permian
(NYSE:RSPP) Operates as an oil and gas, exploration and production company
(E&P), headquartered in Dallas, Texas. The company primarily operates in
the Permian shale formations, specifically in the low cost Midland Basin.
• RSPP is benefiting mightily from the oil price rebound in the first half of 2016 with a near 70%
increase since the all-time lows we saw in the beginning of the year.
• Improved completion
strategies have led to management increasing year end 2016 oil production.
• Continued operating
efficiencies and $45 oil prices contributed to $58.5 EBITDA which beat
consensus estimates of $54.4 and surpassed their capital expenditures of $57.6.
• Due to the positive
sentiment in the market and the quality land positions that RSSP has to offer,
the stock has been pushed to all-time high prices.
Key points: RSPP is the owner
of some the most premier assets for shale production in the country. Their
Midland Basin provides them with an elite low cost play that has them
positioned exceptionally in the current tumultuous oil market. If there is
price stability and continued growth, this company has the assets and history
of past execution to grow immensely.
Since the IPO of RSPP, the company has
been able to continue to increase production year after year as they continue
to develop their Midland asset. This will only improve with the recent bolt on
acquisitions during 2016 that they paid $55 million for. This acquisition was
done to add to their current asset base and untapped inventories. With the
flexibility in their balance sheet and the continued improvements in the
marketplace, RSPP has the ability and the wherewithal to add quality assets to
their base.
Along with the low cost asset base that
they have continued to expand, RSPP has been technologically sound in the
production of their wells. They operate primarily through horizontal laterals
and in the past quarter have seen operational efficiencies materialize in 20%
outperformance of the weighted average internal type curve.
With the addition of a third rig in 3Q16,
RSPP has made an aggressive stance on production for the second half of the
year and their increase in CapEx spending is indicative of that. Their
confident attitude to their market is on par with our other E&P holding
CRZO, who also raised production and CapEx guidance.
What has the stock done lately?
In the past 3 months, the stock has
performed moderately well with a 13% return over that time frame. This is
mainly due to a recovery in the market after the shock of the Brexit. Along
with the recovery, RSPP reported decent numbers and had a positive outlook on
their position in the market.
Source: FactSet
Past Year Performance: Since the
introduction of RSPP in to the portfolio, the stock has performed extremely
well and surpassed its price target early in its time in the portfolio. With
help from the record price rebound, investing in the E&P industry in early
March and April have proven to be perfect entry points for the stocks. Since
that point, our E&P positions have performed amongst the best of the stocks
in the whole portfolio.
My Takeaway
RSPP is a company that operates
efficiently and has assets that are unrivaled by most industry peers. With the
continued recovery in the market, there are few companies that will have the
ability to perform better in the U.S. shale market. Macroeconomic factors are
continuing to become clearer with positive news out of Iran on their production
and Russia recently coming out in support of a production freeze with OPEC.
RSPP would thrive in a price stable environment and should continue to be a
positive performer for the fund.
