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RMP reported second quarter operating and financial results that would have trailed our expectations prior to its announcement of its engagement in a strategic alternatives process. Clearly, market focus will shift from a growth perspective to a near-term underlying asset value build-up, of which we refine in this Facts with the latest well deliverability and forward commodity price curve information. We have reduced our 12-month target price to $1.40/sh on this basis, with an implied EV/DACF target valuation in line with the notional 6.0-8.0x band we generally observe in the M&A market on a near-term or 2017e outlook.
RMP Energy
Impact: Neutral. RMP provided all key financial metrics in a prior operational update on August 4 with no update on the Company's recently initiated strategic review process.
Impact: Neutral to slightly negative. Unplanned facility and pipeline outages have reduced estimated 2Q16e volumes and corresponding 2016e annual production guidance by ~7% (on an unchanged capital budget of $50 mm). In light of a challenging commodity environment and being capital constrained, RMP's has initiated a strategic review process to unlock resource value with our current RENAV methodology, inclusive of its partial recognition of its recently acquired Gold Creek property, suggests a valuation of ~$2.70 per diluted share (~$1.30 per diluted share using strip pricing).
We had the pleasure of hosting RMP management on Monday afternoon for a quick update on its core operating areas, specifically at its emerging light oil Montney play at Gold Creek. The Company recently announced that it has increased its land position at Gold Creek by 20 net sections to 74 (73.5 net) sections within the heart of the fairway and reported test results from its first exploration well at 3-22.
RMP announced further consolidation in its emerging Gold Creek core area, amenable to Montney light crude oil prospectivity, acquiring a competitor’s position for $10 mm.
Impact: Neutral to slightly positive. We view the land acquisition as not overly material, though a potential positive data point in terms of consolidating assets in this environment at an efficient time, with further well test detail allowing for further tangibility for a material resource wedge addition in the medium-term.
RMP reported first quarter operating and financial results that were in line with our forecast.
Neutral to slightly negative. While results for the quarter were in line, revised 2016 guidance includes production below our previous forecast on unchanged capital spending.
Post restriction following our participation in RMP’s recent equity financing, issuing ~24.5 mm shares at $1.41/sh for gross proceeds of ~$34.5 mm, we summarize the Company’s fourth quarter operating and financial results plus its 2015 year-end reserve book which were released in the interim. Further, we formally revised our forecast subsequent to our Commodity Price Update of last week. We have lowered our 12-month target price to $1.75/sh though retain an Outperform ranking on implied returns within its peer group, citing a discount valuation and RENAV excluding future opportunities at Gold Creek and Ante Creek secondary recovery upside at this juncture.
RMP has announced its 1H16e guidance including a capital budget of $30 mm, expected to be funded through internally generated cash flow, and result in corresponding production volumes of 10,500-11,000 boe/d, which was behind our prior forecast. Incorporating RMP’s 1H16e outlook into our estimates and reducing capital spending for 2016e to $60 mm (to be within cash flow at current strip pricing), we observe a 16% reduction to corresponding production volumes to 10,650 boe/d, although net debt exiting the year is modestly better than our prior view at $118 mm, or ~0.8x the Company’s recently revised credit facility of $150 mm (down from $175 mm prior).
Impact: Negative. Although we view RMP's $30 mm 1H16e capital budget as prudent in light of volatility in the current commodity environment, given development activities that are weighted 40% to longer-term projects, the Company's corresponding 1H16e corporate production of between 10,500-11,000 boe/d is behind our current outlook.
Impact: Neutral. RMP's 3Q15 financial results were in-line with expectations on a production (pre-released), capital spending, and cash flow basis.
Following a management update ahead of kicking off conference season, we update our forecast and our NAV methodology to reflect new type curve application at Ante Creek. There are no material changes to our volume or CFPS growth projections within this report, though CFPS generation is slightly better on account of modestly reduced royalties in 2016e.
RMP Energy Inc. (RMP): Management Update
RMP reported second quarter financial and operating results that were in line to ahead of expectations, which is positive. The Company has revised its 2015e forecast, a direct result of 3rd party takeaway restrictions only now being alleviated (Alliance). Our 2015e and 2016e growth and funds flow forecasts are down, though a large driver of a reduced 2016e view is our election to portray heightened capital preservation at this juncture.
Impact: Negative. While this event is directionally negative for producers flowing gas into the Alliance pipeline, the magnitude will depend on the duration of the pipeline outage.
Impact: Neutral.
RMP has reported its 1Q15 financial results with production in-line, given a prior mid-April operational update, from capital spending higher than anticipated. Corresponding cash flow was well ahead of our forecast as a result of the monetization of the Company’s crude oil hedging contracts within the period.
