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JPMorgan Upgrades The SMid-Cap E&P Sector

The SMid-Cap E&P Sector delivered a generally positive 1Q from an operational standpoint, with higher-than-expected production and “several updates driving NAV accretion,” JPMorgan’s Michael A Glick said in a report.

Carrizo Oil & Gas

Analyst Michael Glick upgraded the rating for Carrizo Oil & Gas Inc CRZO from Neutral to Overweight, while raising the price target from $35 to $40. He believes the company is “well-positioned entering 2017 from an operational standpoint, providing optionality to quickly accelerate oil volume growth.”

The price target has been raised mainly due to the expectation of lower completed well costs in the Eagle Ford. Glick added that Carrizo Oil & Gas was among the companies with the most operational flexibility in the sector.

“Built-in frac holidays in 4Q could allow the company to accelerate production without adding an incremental completion crew,” the analyst wrote. He added that although the company’s leverage is higher than other Overweight rated players, its renegotiated credit facility removed covenant-related risk.

“Success with the Stagger-Stack concepts the company is testing (3 producing, 2 being completed; representing 75-80% of the company’s acreage) could push the company’s resource life on par to the Permian group and drive multiple expansion,” the JPMorgan report noted.

Energen

Glick upgraded the rating for Energen Corporation EGN from Neutral to Overweight, while raising the price target from $43 to $51. The price target has been raised to reflect the inclusion of a modest value for the company’s Delaware Basin position into the NAV estimate.

“We see the potential for upsized completions to drive upside to the company’s 2016 guidance. Additionally, we note that the company’s ~40k net acres in Martin, Midland, and Howard Counties could be bolstered by another ~10k net acres (in Howard County) based on ongoing litigation, where an initial ruling went in favor of EGN,” the report stated.

Energen had a robust balance sheet remains, which may be further strengthened by asset sales of an estimated $400mm. The company’s plan to rebuild its DUC inventory “provides enhanced flexibility entering 2017,” Glick added.

Laredo Petroleum

The analyst upgraded the rating for Laredo Petroleum Inc LPI from Underweight to Neutral, while raising the price target from $9 to $12.

While expressing concern regarding Laredo Petroleum’s leverage, Glick pointed out that high intensity completions, combined with the Earth Model, were generating impressive results, tracking more than 30 percent higher than the company’s oil type curve.

Before 1Q, the company had drilled 49 wells with EURs of 1 Mmboe or higher, including 8 wells with EURs of 1.5 Mmboe or greater. In 1Q, the company completed 9 additional wells, of which 8 are tracking EURs of 1.5 Mmboe or greater. Moreover, Laredo Petroleum had raised its estimate of locations that are developable on 10,000 ft. laterals from 44 percent to +80 percent.

“We are modestly increasing our EURs by 10% and assume the majority of the company’s development going forward features 10,000' laterals,” Glick mentioned.

DateFirmActionFromTo
May 2016JP MorganUpgradesNeutralOverweight
May 2016Imperial CapitalMaintainsOutperform
Mar 2016Seaport GlobalDowngradesBuyNeutral

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