SunTrust: Energen Could Be About To Sell Delaware Property, Stock Will 'Pop'

Energen Corporation EGN "could be close to selling its 31,000 non-core (tier 2) Delaware acres for potentially $300+ million," according to a report from SunTrust Robinson Humphrey. The event that could boost the stock.

"A strong Permian sale could cause the company to pull its San Juan proposed sale as the proceeds combined with the recent $381 million equity offering should be more than ample for upcoming activity," analyst Neal Dingmann said in a client note.

"In fact, given the potential cash infusion and increasing commodity prices, we would not be surprised to see up to three rigs added relatively soon. We could also soon hear of improved Martin/Glasscock County well results."

The analyst, who has a Buy rating on Energen shares, noted that the company "could soon increase D&C spending above $250 million if the non-core Delaware Basin package is sold for more than $300 million."

Related Link: Energen Adds Oil Hedges In 2016, 2017

"While other asset sales (San Juan and Central Basin Platform) are still possible, the urgency of either would be much less if a high price is received for the Delaware," Dingmann added.

According to the analyst, "with over 4,400 net locations (2,500+ Midland and 1,900+ Delaware), the company has ample inventory that could be drilled if the budget is increased."

"We look for upcoming Midland updates highlighting the Jo Mill and Middle/Lower Spraberry as all three look encouraging versus Glasscock economics. Given the higher activity and debt reduction post offering, we are raising our price target to $43 from $30," Dingmann highlighted.

Shares of Energen were up about 5 percent at $36.42. They have dropped roughly 11 percent this year.