Iberia Says Energen's Strong Outlook Could Still Be Conservative

“The combination of balance sheet strength, sound core inventory profile and catalyst potential places EGN among the best positioned independents in our group heading into 2017,” Iberia Capital’s Blaise Angelico said in a report. He reiterated an Outperform rating on Energen Corporation EGN, with a price target of $81.

The three-year outlook reflects the strength of Energen’s portfolio, while the company’s return to growth is backed by a replenished DUC backlog.

3-Year Outlook

Although the three-year outlook is positive, this may prove conservative since the current estimates incorporate “service cost escalations and Gen-3 frac designs, but Gen-2 production profiles,” Angelico commented.

Energen expects to double its production to ~100 MBoe/d (million barrels of oil equivalents per day) by 2019, from the current level of ~52 MBoe/d, while being largely cash flow neutral in 2018.

DUC Backlog

The 2016 drilling program has positioned the company to accelerate production “quickly and efficiently” in the first half of 2017 by mostly relying on the yearend 2016 backlog of 52–61 DUCs, Angelico stated. Of these, 33–41 would be in the Midland Basin and the remaining 19–20 in the Delaware.

“The high working interest, long lateral wells should jump start production beginning in 2Q17 and result in volumes growth of ~40 percent, 4Q16/4Q17,” the analyst wrote.