Imperial Capital: Alta Mesa Resources Will 'Grow Into A Much More Attractive Valuation'

Alta Mesa Holdings LP AMR began trading Feb. 9 as part of a combination of Silver Run Acquisition Corporation II, Alta Mesa Holdings LP and Kingfisher Midstream LLC. The combined oil and natural gas entity was renamed Alta Mesa Resources and boasts upstream assets of around 130,000 net acres, mostly in Oklahoma, according to Imperial Capital. 

The Analyst

Imperial Capital's Irene Haas initiated coverage of Alta Mesa Resources' stock with an Outperform rating and $10 price target.

The Thesis

In addition to owning 130,000 net acres of upstream assets, the company's Kingfisher Midstream business owns more than 400 miles of pipelines and its natural gas processing capacity is around 350MMcf/d, Haas said in a Monday note. (See the analyst's track record here.)

Alta Mesa has also drilled more than 247 horizontal wells and conducted 12 down spacing pilots, the analyst said. 

"We believe AMR has the right acreage, the midstream support and the financial strength to realize a multiyear growth ramp," Haas said. 

Imperial Capital projects that it will take time for the stock's valuation to grow from its "mispriced" valuation, since it is a new equity without an established track record. The firm's $10 price target is based on a proven reserves valuation of $5 per share, a probable reserve valuation of $5 per share, midstream assets valuation of $2 per share and a projected net debt of $2 per share.

Price Action

Alta Mesa shares were up 0.23 percent at $7.49 just before the close of Monday's trading session. 

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