Exploration & Production

Transcription

1 Americas/United States Equity Research Oil & Gas Exploration & Production Research Analysts Mark Lear, CFA Arun Jayaram, CFA David D. Lee Sanya Thapa Helen Xu Exploration & Production SECTOR REVIEW Adjusting NAVs, EPS and TPs on Realized 3Q13 Prices & Updated Commodities Forecast Adjusting EPS, NAVs and TPs on Realized 3Q13 Commodity Prices and Updated Commodities Forecast. Reflecting the Global Commodities team's forecast revisions on 10/3/13 (see Commodities Forecasts: The Long and Winding Road ), we are revising our 2013/14/15 EPS estimates, our 'PD-Plus' net asset value estimates and our target prices for our E&P coverage universe. We maintain our long-term (2016+) Brent at $90.00/Bbl, but raise our long-term WTI to $82.00/Bbl driven by a tightening of the Brent- WTI spread to $8/Bbl from $10/Bbl. We maintain our long-term natural gas price forecast at $4.50/MMBtu (see Exhibit 1 and Exhibit 2) and lower our 4Q13, 2014 and 2015 natural gas price outlook. We also mark-to-market 3Q13 realized WTI oil prices and natural gas prices (averaged $ per Bbl and $3.60 per MMBtu vs. our previous estimates of $97.00 per Bbl and $4.20 per MMBtu). Our 2013/14/15 EPS Estimates Change by -1%/+2%/0%. Following the adjustments to our long-term oil and near-term natural gas price forecasts and recent company updates, our 2013, 2014 and 2015 EPS estimates change by -1%, +2% and 0%, respectively. Relative to consensus, we are 2% and 4% below the street in 2013 and 2015, respectively, and 7% above the street in Overall PD-Plus NAVs Increase by 1%. Our overall PD-Plus NAV estimates increase by 1% as a result of our revised commodity price forecast. In addition, our PD-Plus NAV estimates for the overall E&P coverage universe represent a median 5% upside to current equity prices. For our SMID-Cap coverage group our PD-Plus NAV estimates represent a median 10% upside to current equity prices, while our Large-Cap coverage group at the median appears to be fairly valued at current equity prices. Company Updates Ahead of the Quarter. Ahead of the 3Q13 earnings season, we provide company updates for our coverage universe from recent industry conferences, investor field trips and operational updates. DISCLOSURE APPENDIX CONTAINS IMPORTANT DISCLOSURES, ANALYST CERTIFICATIONS, INFORMATION ON TRADE ALERTS, ANALYST MODEL PORTFOLIOS AND THE STATUS OF NON-U.S ANALYSTS. FOR OTHER IMPORTANT DISCLOSURES, visit or call +1 (877) US Disclosure: Credit Suisse does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision. CREDIT SUISSE SECURITIES RESEARCH & ANALYTICS BEYOND INFORMATION Client-Driven Solutions, Insights, and Access

2 Credit Suisse Oil and Natural Gas Forecast Changes Exhibit 1: Credit Suisse NYMEX Natural Gas Price Forecast Change Summary ($ per MMBtu) Current Previous Period Price Price Futures Consensus FY12 $ Q13 $ Q13 $ Q13 $3.60 $ Q13E $3.75 $4.20 $3.74 $3.99 FY13E $3.70 $3.96 $3.74 $3.76 1Q14E $4.10 $4.10 $4.02 $4.10 2Q14E $3.80 $3.90 $3.96 $4.00 3Q14E $4.00 $4.00 $4.02 $4.00 4Q14E $3.75 $4.10 $4.13 $4.38 FY14E $3.91 $4.03 $4.03 $4.05 FY15E $4.15 $4.38 $4.15 $4.35 Long-Term $4.50 $4.50 $ Source: Bloomberg, Credit Suisse estimates *Note: Futures strip as of 10/15/13 Exhibit 2: Credit Suisse WTI Oil Price Forecast Change Summary ($ per Bbl) Current Previous Period Price Price Futures Consensus FY12 $ Q13 $ Q13 $ Q13 $ $ Q13E $ $ $ $ FY13E $98.84 $96.89 $ $ Q14E $ $ $ $ Q14E $ $ $98.72 $ Q14E $ $ $96.71 $ Q14E $ $95.00 $94.87 $96.00 FY14E $ $ $97.75 $ FY15E $92.00 $90.00 $90.62 $ Long-Term $82.00 $80.00 $ Source: Bloomberg, Credit Suisse estimates *Note: Futures Strip as of 10/15/13 Exploration & Production 2

3 EPS and Target Price Changes Price Price Rating* Target Price Year EPS EPS FY1E EPS FY2E EPS FY3E Company ccy 16 Oct 13 Prev. Cur. Prev. Cur. End Ccy Prev. Cur. Prev. Cur. Prev. Cur. Anadarko Petroleum Corp. US$ O Jun 12 US$ (APC) Apache Corp. (APA) US$ O Dec 12 US$ Athlon Energy Inc. (ATHL) US$ N Dec 12 US$ Bonanza Creek Energy Inc. US$ O Dec 12 US$ (BCEI) Carrizo Oil & Gas Inc. (CRZO) US$ U Dec 12 US$ Chesapeake Energy Corp. US$ N Dec 12 US$ (CHK) Comstock Resources (CRK) US$ N Dec 12 US$ (1.24) (1.38) CONCHO RESOURCES US$ N Dec 12 US$ (CXO) Denbury Resources (DNR) US$ O Dec 12 US$ Diamondback Energy (FANG) US$ O Dec 12 US$ Energy XXI (EXXI) US$ O Jun 13 US$ EOG Resources (EOG) US$ O Dec 12 US$ Forest Oil (FST) US$ 5.47 U 5.00 Dec 12 US$ Gulfport Energy (GPOR) US$ O Dec 12 US$ Kodiak Oil & Gas Corp (KOG) US$ N Dec 12 US$ Noble Energy (NBL) US$ O Dec 12 US$ PDC Energy (PDCE) US$ O Dec 12 US$ Penn Virginia Corp (PVA) US$ 7.75 N Dec 12 US$ (0.64) (0.69) (0.37) (0.43) (0.36) (0.49) Pioneer Natural Resources US$ O Dec 12 US$ (PXD) Range Resources (RRC) US$ O Dec 12 US$ Rex Energy Corp. (REXX) US$ N Dec 12 US$ Rosetta Resources Inc. US$ O Dec 12 US$ (ROSE) SandRidge Energy (SD) US$ 6.55 N 4.90 Dec 12 US$ (0.04) 0.09 (0.18) (0.05) Southwestern Energy Co. US$ U Dec 12 US$ (SWN) Swift Energy Co. (SFY) US$ N Dec 12 US$ Whiting Petroleum Corp. (WLL) US$ N Dec 12 US$ *O Outperform, N Neutral, U Underperform, R Restricted [V] = Stock considered volatile (see Disclosure Appendix). Source: Company data, Credit Suisse estimates. Exploration & Production 3

4 Exhibit 3: Credit Suisse Exploration & Production Universe Credit Suisse Exploration & Production Universe Tgt PD PD-Plus Target Price TGT PX % Upside / Downside Ticker Rating Px NAV NAV Basis to Equity ATHL NEUTRAL $30 $4 $30 PD-Plus NAV -10% BCEI OUTPERFORM $55 $9 $55 PD-Plus NAV 5% CRZO UNDERPERFORM $34 $0 $34 PD-Plus NAV -26% CRK NEUTRAL $18 $3 $18 PD-Plus NAV -2% FANG OUTPERFORM $62 $0 $62 PD-Plus NAV 25% EXXI OUTPERFORM $35 $27 $35 PD-Plus NAV 11% FST UNDERPERFORM $5 $0 $5 PD-Plus NAV -9% GPOR OUTPERFORM $79 $6 $79 PD-Plus NAV 20% KOG NEUTRAL $13 -$2 $13 PD-Plus NAV 1% PVA NEUTRAL $7 -$5 $7 PD-Plus NAV -10% PDCE OUTPERFORM $79 $12 $79 PD-Plus NAV 18% RRC OUTPERFORM $100 $16 $100 PD-Plus NAV 23% REXX NEUTRAL $21 $2 $21 PD-Plus NAV -12% ROSE OUTPERFORM $62 $9 $62 PD-Plus NAV 6% SFY NEUTRAL $14 $1 $14 PD-Plus NAV 12% WLL NEUTRAL $65 $35 $65 PD-Plus NAV -3% S/Mid E&P Coverage Group 3% APC OUTPERFORM $122 $53 $122 PD-Plus NAV 25% APA OUTPERFORM $105 $70 $105 PD-Plus NAV 16% CHK NEUTRAL $22 $2 $22 PD-Plus NAV -20% CXO NEUTRAL $95 $32 $95 PD-Plus NAV -19% DNR OUTPERFORM $24 $12 $24 PD-Plus NAV 26% EOG OUTPERFORM $210 $56 $210 PD-Plus NAV 15% NBL OUTPERFORM $70 $17 $70 PD-Plus NAV 0% PXD OUTPERFORM $209 $67 $209 PD-Plus NAV -1% SD NEUTRAL $5 $1 $5 PD-Plus NAV -25% SWN UNDERPERFORM $33 $13 $33 PD-Plus NAV -11% Large-Cap E&P Coverage Group *Proved Plus Projects NAV 0% Overall E&P Coverage Group 0% Source: Bloomberg, Company data and Credit Suisse estimates Exploration & Production 4

5 Exhibit 4: Summary of Changes in PD-Plus NAVs Proved-Developed Plus NAV ($ per share) P/NAV Ticker New Previous Change Current ATHL $30 $30 0% 111% BCEI $55 $49 12% 95% CRZO $34 $29 17% 134% CRK $18 $18 0% 103% FANG $62 $54 15% 80% EXXI $35 $35 0% 90% FST $5 $5 0% 110% GPOR $79 $72 10% 83% KOG $13 $11 18% 99% PVA $7 $5 40% 111% PDCE $79 $65 22% 84% RRC $100 $99 1% 81% REXX $21 $19 11% 113% ROSE $62 $58 7% 94% SFY $14 $14 0% 89% WLL $65 $55 18% 103% S/Mid E&P Coverage Group 10% 97% APC $122 $122 0% 80% APA $105 $104 1% 86% CHK $22 $22 2% 123% CXO $95 $91 4% 123% DNR $24 $24 0% 80% EOG $210 $210 0% 87% NBL $70 $68 3% 100% PXD $209 $209 0% 101% SD $5 $5 0% 134% SWN $33 $33 0% 112% Large-Cap E&P Coverage Group 0% 100% Overall E&P Coverage Group 1% 95% Source: Company data, Credit Suisse estimates Exploration & Production 5

6 Exhibit 5: 2013 EPS Summary Credit Suisse 2013E EPS First Call Exhibit 6: 2014 EPS Summary Credit Suisse 2014E EPS First Call Current Previous Change Consensus Delta Ticker ($/Share) ($/Share) (%) ($/Share) (%) ATHL $0.71 $ % $ % BCEI $1.86 $1.76 6% $1.75 6% CRZO $2.59 $2.68-3% $2.60-1% CRK -$1.38 -$1.24 NM -$1.23 NM FANG $1.28 $1.29-1% $1.26 2% EXXI $2.33 $2.45-5% $2.27 3% FST $0.23 $ % $ % GPOR $0.70 $ % $0.71-1% KOG $0.66 $0.67-1% $0.68-2% PVA -$0.69 -$0.64 NM -$0.65 NM PDCE $1.14 $1.20-5% $ % RRC $1.41 $1.49-6% $1.40 1% REXX $0.62 $0.63-1% $0.63-1% ROSE $3.77 $3.77 0% $3.94-5% SFY $0.65 $ % $0.66-2% WLL $4.21 $4.28-2% $4.04 4% APC $4.20 $4.20 0% $4.53-7% APA $7.86 $7.90-1% $8.15-4% CHK $1.60 $ % $1.66-4% CXO $3.68 $3.74-2% $3.74-1% DNR $1.52 $1.53-1% $1.51 0% EOG $7.61 $7.61 0% $7.85-3% NBL $3.34 $3.40-2% $3.51-5% PXD $4.53 $4.87-7% $4.88-7% SD $0.06 $ % $ % SWN $1.92 $1.93-1% $2.04-6% Median -1% -2% *EXXI Estimates are for Calendar Years Source: First Call, Company data, Credit Suisse estimates Current Previous Change Consensus Delta Ticker ($/Share) ($/Share) (%) ($/Share) (%) ATHL $1.20 $1.25-4% $1.20 0% BCEI $4.36 $ % $ % CRZO $3.23 $3.21 1% $3.34-3% CRK $0.76 $ % $ % FANG $3.13 $3.09 1% $ % EXXI $3.09 $2.97 4% $ % FST $0.51 $ % $ % GPOR $2.87 $3.01-5% $ % KOG $1.27 $1.20 5% $ % PVA -$0.43 -$0.37 NM -$0.40 NM PDCE $2.64 $2.75-4% $ % RRC $1.99 $ % $1.93 3% REXX $1.41 $1.38 2% $ % ROSE $4.70 $4.46 5% $4.46 5% SFY $0.68 $ % $0.69-1% WLL $5.90 $ % $ % APC $5.77 $5.77 0% $5.48 5% APA $8.40 $8.30 1% $7.90 6% CHK $2.44 $ % $ % CXO $5.36 $5.18 4% $ % DNR $1.57 $1.62-3% $ % EOG $9.73 $9.73 0% $9.14 7% NBL $4.35 $4.36 0% $4.36 0% PXD $5.36 $5.06 6% $ % SD $0.09 -$0.04 NM $0.00 NM SWN $2.03 $ % $2.23-9% Median 2% 7% *EXXI Estimates are for Calendar Years Source: First Call, Company data, Credit Suisse estimates Exploration & Production 6

7 Exhibit 7: 2015 EPS Summary Credit Suisse 2015E EPS First Call Current Previous Change Consensus Delta Ticker ($/Share) ($/Share) (%) ($/Share) (%) ATHL $1.60 $1.66-4% $ % BCEI $5.32 $ % $ % CRZO $3.61 $3.64-1% $ % CRK $0.93 $0.97-4% $ % FANG $4.22 $ % $ % EXXI $3.06 $3.02 1% $3.18-4% FST $0.47 $0.46 3% $ % GPOR $3.59 $3.72-4% $ % KOG $1.30 $1.25 4% $ % PVA -$0.49 -$0.36 NM -$0.50 NM PDCE $4.18 $4.35-4% $ % RRC $3.04 $3.29-8% $3.25-6% REXX $1.52 $1.63-6% $ % ROSE $4.91 $4.87 1% $5.03-2% SFY $0.70 $0.70 0% $ % WLL $5.86 $5.46 7% $ % APC $5.04 $5.04 0% $ % APA $7.08 $7.11-1% $ % CHK $2.33 $ % $2.50-7% CXO $5.49 $5.45 1% $5.41 1% DNR $1.46 $1.40 4% $ % EOG $9.31 $9.31 0% $ % NBL $3.95 $3.99-1% $ % PXD $4.58 $4.58 0% $ % SD -$0.05 -$0.18 NM -$0.07 NM SWN $2.06 $2.02 2% $ % Median 0% -4% *EXXI Estimates are for Calendar Years Source: First Call, Company data, Credit Suisse estimates Exploration & Production 7

8 Exhibit 8: 3Q13 EPS Summary Credit Suisse 3Q13E EPS First Call Exhibit 9: 3Q13 EPS Quarterly Comps Quarterly Comps Current Previous Change Consensus Delta Ticker ($/Share) ($/Share) (%) ($/Share) (%) ATHL $0.16 $ % $0.17-7% BCEI $0.50 $ % $0.49 1% CRZO $0.70 $0.71-2% $0.72-3% CRK -$0.34 -$0.25 NM -$0.30 NM FANG $0.34 $0.33 3% $0.34-1% EXXI $0.60 $0.59 0% $0.57 5% FST $0.08 $ % $0.08 1% GPOR $0.16 $ % $0.15 6% KOG $0.20 $0.19 2% $0.20-4% PVA -$0.19 -$0.15 NM -$0.16 NM PDCE $0.20 $ % $ % RRC $0.33 $ % $0.34-2% REXX $0.16 $0.16-1% $0.16-3% ROSE $0.89 $0.82 8% $0.90-2% SFY $0.13 $0.13-1% $0.13 4% WLL $1.09 $1.09 0% $1.02 7% 3Q13E 2Q13A 3Q12A QOQ YOY EPS EPS EPS Delta Delta Ticker ($/Share) ($/Share) ($/Share) (%) (%) ATHL $0.16 $0.23 NM -30% NM BCEI $0.50 $0.27 $ % 34% CRZO $0.70 $0.61 $ % 57% CRK -$0.34 -$0.32 -$0.50 NM NM FANG $0.34 $0.30 NM 13% NM EXXI $0.60 $0.68 $ % 117% FST $0.08 $0.06 $ % -14% GPOR $0.16 $0.16 $0.28 3% -44% KOG $0.20 $0.12 $ % 44% PVA -$0.19 -$0.17 -$0.16 NM NM PDCE $0.20 $0.23 -$ % NM RRC $0.33 $0.34 $0.20-3% 66% REXX $0.16 $0.14 $ % 111% ROSE $0.89 $0.88 $0.76 0% 16% SFY $0.13 $0.15 $ % 83% WLL $1.09 $1.02 $0.73 6% 48% APC $1.08 $1.08 0% $1.14-4% APA $2.11 $1.98 7% $2.12 0% CHK $0.34 $0.34-1% $ % CXO $1.04 $1.05-1% $1.04 0% DNR $0.42 $ % $0.39 7% EOG $1.87 $1.87 0% $1.95-4% NBL $0.92 $ % $0.94-3% PXD $1.23 $1.26-2% $1.28-4% SD -$0.01 -$0.02 NM $0.01 NM SWN $0.47 $0.48-3% $0.52-9% Median 0% -2% *EXXI Estimates are for Calendar Quarters Source: First Call, Company data, Credit Suisse estimates APC $1.08 $1.05 $0.84 3% 29% APA $2.11 $1.96 $2.19 7% -4% CHK $0.34 $0.40 $ % 238% CXO $1.04 $0.98 $0.96 6% 8% DNR $0.42 $0.41 $0.33 4% 29% EOG $1.87 $2.10 $ % 8% NBL $0.92 $0.69 $ % 200% PXD $1.23 $1.10 $ % 49% SD -$0.01 $0.08 $0.05 NM NM SWN $0.47 $0.54 -$ % NM Median 4% 34% *EXXI Estimates are for Calendar Quarters Source: First Call, Company data, Credit Suisse estimates Exploration & Production 8

9 SMID-Cap E&P: Company Updates We provide company updates as provided in recent operations updates, investor meetings and discussions with management teams. Athlon Energy (ATHL) Neutral, $30 TP ATHL has built an enviable position in the northern Midland Basin (98k net acres), where operators are in the early innings of derisking the stacked oil resource potential in an area that has historically delivered strong, repeatable vertical returns. ATHL remains focused on the vertical opportunity, running an approximate seven-rig program in 2013 (four in Howard, two in Midland, and one in Glasscock Counties) and has just initiated its horizontal program in Midland County. While the focus in the southern Midland Basin has been on horizontal development for several years given the poor economics of vertical wells, peers including PXD, LPI, and FANG have just begun unlocking the stacked horizontal potential in the northern portion of the basin. Operators are targeting multiple horizons, including the Wolfcamp A, B, and C, as well as the Cline, Spraberry, Jo Mill, and Clearfork across the basin, and with few ways to gain exposure, ATHL and its northern Midland Basin peers have delivered some of the best stock performance in E&P in Howard County holds 52% of ATHL s leasehold and, while vertical economics appear to stack up well relative to the western core of the Midland Basin, there is very little data to date to either support or dispel the horizontal potential in the area. Despite the size of the position and its relative importance to the ATHL story, the company has chosen to wait to test the area until 2Q14 and test the other areas first. There is a only a single horizontal data point in Howard County from closely-held Element Petroleum s SFH Unit 23 1H well, which had a peak IP rate of 850 Boe/d and produced ~20 MBoe in its first month online (~650 Boe/d assuming 30-days online, 89% oil) in the lower Wolfcamp A zone. According to state permitting data, Element recently spud a second horizontal well just northwest of the SFH well (Hamlin Unit H well) and has a third permitted (Gardner Unit H well). Endeavor (private) recently spud its second horizontal well in the county with its Guitar 1-4 1H well and has yet to disclose production data from its initial well, the Guitar 5 2H, which spud in February 2013 targeting the Cline. Tall City (private) recently permitted its initial horizontal Spraberry well a couple of miles east of the SFH well, and APA also recently spud its initial horizontal well, further east in Howard County, with its Thomson 12 2H well. Bonanza Creek Energy (BCEI) Outperform, $55 TP We expect BCEI to provide a number of results in its 3Q13 earnings, which include three Niobrara C wells, a third XL Niobrara B well and a four-well pad testing 40-acre spacing in the Niobrara B. BCEI may also discuss results from three Codell wells that it had drilled in 3Q13. The company expects to commence drilling on its 15-well 'Super-Section' test in November 2013, which will test different spacing and stacking configurations, with first production expected in 1Q14 around mid-to-late February. With regards to the flooding in the Niobrara, which was centered more Southeast of BCEI's acreage, the company's production was minimally impacted. The company had shut in 13 horizontal wells and 26 vertical wells, of which 80% were back online within a week. The company is now drilling ahead of its targeted 8 completions a month pace with 21 completed in the first two months of the quarter. BCEI also reaffirmed that the DCP Midstream's LaSalle plant had soft-started and is processing some gas and should be fully online by the middle of October. BCEI also expects to have some additional color on its 5- acre downspacing program in southern Arkansas. Diamondback Energy (FANG) Outperform, $62 TP FANG has a number of catalysts that we expect will be announced on the 3Q call delineating its acreage position including a Clearfork well (7,500 ft lateral), Spraberry well and 10,000 ft long lateral in the Wolfcamp B. We also anticipate that FANG will provide Exploration & Production 9

10 preliminary 2014 capex and production guidance on its 3Q13 earnings call. The company exceeded 10 MBoe/d of production in early October, which included 1.8 MBoe/d of production from the mineral rights acquisition, which closed in mid-september. FANG reported 3Q13 net production volumes of 7.4 MBoe/d vs. consensus of 7.8 MBoe/d and our 7.6 MBoe/d estimate and exited the quarter at 9.8 MBoe/d. The company faced operational issues in the quarter related to record heat in the region and the shutting in of adjacent wells during fracking operations, which negatively impacted production. Operating unit costs came in below $9 per Boe in the quarter from over $18 per Boe in 3Q12 and should come down further as production growth starts to ramp. The company plans to focus more on efficiencies and shift towards pad drilling and using gas lift versus ESP's. Carrizo Oil & Gas. (CRZO) Underperform, $34 TP We expect CRZO to provide some color on the progress of some downspacing test pilots in the Eagle Ford where the company is drilling laterals on 500 feet spacing (60-acres) versus 750 feet spacing (90-acres) now. The company plans to run a three-rig program in the Eagle Ford through the remainder of In the Niobrara, CRZO is running two rigs and is testing downspacing to 60-acre spacing from 80-acres and should have some results to discuss by the 4Q13 earnings call. Niobrara production was minimally impacted by the recent flooding in Colorado, which was closer to core Wattenberg and curtailed some production from NBL and APC. In the Utica where the CRZO holds 15,500 net acres, the company has drilled and is fracking its first well (Rector #1H, 8,000 ft lateral) in Guernsey County, which should be online by YE With regards to leasehold, CRZO plans to add opportunistically in the Eagle Ford first and then in the Utica. Recall, the company entered into an agreement to sell its remaining Barnett assets for $250MM, which includes 9,000 net acres and 44 MMcf/d of production, and is expected to close at the end of October. Comstock Resources (CRK) Neutral, $18 TP CRK is addressing the primary concern we have with story; drilling inventory. While the company address the balance sheet concerns with the Permian sale earlier in the year, the company s plan to accelerate Eagle Ford activity in the face of these inventory concerns make acquisitions more of an imperative. The company has discussed having difficulty competing for acquisitions in its core Eagle Ford area and sees little opportunity to further increase its position beyond the few thousand net acres it added recently. CRK has decided to add one or two additional areas of focus, which would include other areas in the Eagle Ford, as well as what we suspect to be the TMS, where the company plans to spend upwards of $100MM to add exploratory acreage. Energy XXI (EXXI) Outperform, $35 TP EXXI continues to focus on executing on its scaled back drilling program in F2014 in order to deliver promised free cash flow. The company anticipates having two recent development well results for the call, including the Hulk well (West Delta 73 hz) and the Don Lino (Main Pass) The bulk of the F2014 development program is focused on West Delta 73, where the company plans to drill 10 hz wells, along with three hz wells at West Delta 30. More recently, shelf players have been increasingly excited about deeper exploration opportunity focused on new wide-azimuth seismic data giving a much better look at missed resource under salt domes. The company expects to give an update on its Merlin well in its XOM-JV at Vermillion 164 where the company had previously estimated net P-50 resource potential of 175 MMBoe, as well as the Heron well, the initial well in the Fieldwood-operated JV. In the Ultra-Deep exploration program, EXXI expects completion operations on Davy Jones II well in the December 2013/January 2014 timeframe. The company will hold an analyst day in NYC on 10/23 ahead of its 10/30 F1Q14 earnings call. Exploration & Production 10

11 Forest Oil (FST) Underperform, $5 TP We expect FST to release some well results from its JV with SLB and potentially give updated guidance following the recent asset divestiture. Recall, the company reported that it entered into an agreement to sell its Panhandle assets to Templar Energy for $1B, which was in line with our previous estimate for proceeds. The sold properties had 100MMcfe/d of production (50% natural gas, 30% NGL's, 20% oil), estimated proved reserves of 517 Bcfe and generated $180MM of EBITDA over the last twelve months. The deal is expected to close on or before 11/25/13 with an effective date of 10/1/13. The company has noted that Eagle Ford well costs have come down to just below $6MM and could potentially go lower as they partner up with American Midstream to handle central processing and remove the need for tank batteries. The company plans to focus on holding acreage in the Eagle Ford before moving to development mode in 2014, while managing capital spend and its balance sheet. We expect the company to ratchet down capital plans going forward focusing on developing the Eagle Ford. FST noted that it continues to weigh options and to monetize its Permian asset (63.5 k net acres in Reeves and Pecos Counties, TX). Gulfport Energy (GPOR) Outperform, $79 TP GPOR reported 3Q13 production of 12,976 Boe/d, which was above guidance of MBoe/d (previously lowered from MBoe/d) and consensus of 12.7 MBoe/d. More importantly, the company lowered its year-end exit rate guidance to MBoe/d from MBoe/d prior, which it attributed to delays associated with drilling. In addition, the company increased its Utica acreage position by 8,500 net acres to 144,500 net acres. For 3Q earnings, we also expect the company to update its full-year 2013 guidance, as well as provide 2014 capex and production guidance. GPOR should provide some color on the Irons #1-4H well (delayed due to right-of-way issues by Dominion) in Belmont County, OH, which should be tied in by mid-october. The company may also provide results from three wells on the Ryser pad. Recall, the company had provided well results for three Utica wells in mid-september: Wagner 3-28H with 7-day IP of 2,607 Boe/d (49% liquids), Clay 3-4H with a 7-day IP of 1,019 Boe/d (70% liquids), Lyon 3-27H 1,014 Boe/d (74% liquids). GPOR expects to keep seven rigs running in the basin. We expect GPOR's production mix to become gassier as the as the company shifts more rigs to the wet and dry gas windows of the play in 4Q13 and into With regards to infrastructure, the company noted that MWE's Cadiz plant is currently running above nameplate capacity and still expects MWE s Seneca I and II processing plants to come on line in 4Q13. GPOR stated that it may have some midstream agreements in place for the residue gas locking up firm transport or sales. Kodiak Oil & Gas (KOG) Neutral, $13 TP We expect KOG to provide an update on its downspacing pilots testing 6 wells in Middle Bakken, 6 wells staggered Upper and Middle Three Forks. The company should have color on its Smokey 12-well downspacing pilot, which had its final four-well pad flowing back in early October. KOG recently provided 30-day rates for its Polar pilot wells, which were in line with previous wells and indicate that there is not much interference between the wellbores. On back of positive initial results, the company is planning on moving forward with a four-well pad testing spacing at feet for two Middle Bakken and two Three Forks, which, if successful, would allow KOG to put a seventh Middle Bakken well and a seventh Three Forks well per DSU. KOG stated that it will likely come in at the lower-end of its prior MBoe/d guidance with production exiting September at MBoe/d. The company highlighted that it has driven well costs down to about $9.5MM from $ MM earlier in the year and is targeting to hit $9.0MM by the end of Exploration & Production 11

12 PDC Energy (PDCE) Outperform, $79 TP PDCE is making progress with its Waste Management pad (6 Niobrara B, 4 Niobrara C, 6 Codell wells in various stacked and downspacing configurations) is currently producing from six wells and should have all 16 wells on production by the end of the month. The company expects to have some color on initial production rates from these wells on the 3Q13 earnings call and will likely provide a more comprehensive analysis of results on its Analyst Day in April PDCE noted that it does not expect a material impact to Niobrara production from the recent flooding. The company should be adding a fourth rig in the play in December 2013 and could potentially ramp to five rigs by mid With regards to infrastructure, PDCE noted that DCP Midstream's LaSalle plant is completed and should be online and processing gas by mid-october. Out of the Utica, PDCE should have some color on the Garvin well and potentially the Neill well in Washington County, OH, which should help delineate the southern extent of the Utica. Both wells are expected to be tied into Blue Racer. In addition, the company should have additional Utica well results with the Stiers pad (3 wells, 5,000 ft laterals) online. PDCE is currently completing the Detweiler wells has one rig running in the play drilling the second Onega-Commissioners well and will probably look to add another rig in 2H14. Penn Virginia (PVA) Neutral, $7 TP PVA is currently running a 4 5 operated rig program in 2H13 in the Eagle Ford and expects to provide recent well results in the 3Q13 earnings release. The company highlighted shallower declines from recent wells, which exhibited 30-day rates that were 83% of their respective 24-hour IP rates, and attributed these improvements to the utilization of the zipper fracs. The company may also provide a mid-year reserves update for its Eagle Ford properties (as of YE MMBoe and 12.0 MMBoe from acquired properties) in this upcoming earnings release and an update on its increased borrowing base. PVA may also provide some color on additional bolt-on acquisitions. Recall, the company had increased its borrowing base to $350MM (from $275MM) in 2Q13. We also expect PVA to provide preliminary capex guidance for next year, which could potentially run ~$ MM assuming a 4-rig program or exceed $500MM assuming a 5-rig program. PVA plans to spud a horizontal Upper Eagle Ford test well in December 2013 with additional color on the potential of this zone expected in 4Q13. The company also plans to test an Austin Chalk well on its properties in the near future. Range Resources (RRC) Outperform, $100 TP The company expects to have additional production history for its Super-Rich and Liquids- Rich Marcellus wells helping to affirm the recent upward revisions to EUR's. RRC expects to maintain a 6-rig program in the southwest Marcellus and a 1-2 rig program in northeast Marcellus. With regards to Marcellus differentials widening in the basin, the company noted that it was relatively insulated versus peers since a large portion of its Marcellus volumes are contracted on firm takeaway capacity where RRC receives NYMEX pricing. The company reaffirmed that ethane sales to Mariner West has commenced and should average 5,000 Bbl/d for 2H13 before ramping to 15,000 Bbl/d in RRC also noted that ATEX is expected to come online in 1Q14, which would provide RRC with 20,000 Bbl/d of additional ethane takeaway capacity. Mariner East is still projected to come online with 20,000 Bbl/d of ethane takeaway capacity in In the Mississippian, RRC has lowered its rig count to one to two rigs from five on the back of increased efficiencies, which have driven drill and complete days down to the highteens from the low 30's. The company expects to drill its forecasted 40 wells in 2013 with fewer rigs and, while not having set its 2014 budget yet, RRC plans to drill the same number of planned wells with fewer than the ten rigs that the company had originally estimated. Exploration & Production 12

13 We expect the company to release an operations update providing 3Q13 production and pricing later this week. We currently estimate that production will come in around MMcfe/d vs. consensus of MMcfe/d and guidance of MMcfe/d. Rex Energy Corp. (REXX) Neutral, $21 TP We expect REXX to give additional production history on the three Warrior South wells that it placed into production last quarter. Recall the wells, located in Noble County, produced at average 5-day and 30-day sales rates of 1,731 Boe/d (57% liquids) and 1,588 Boe/d (55% liquids), respectively. The wells drilled on the five-well J. Anderson Pad in Guernsey County are currently shut-in and the company expects to bring them into sales towards the end of the year with results expected on the 4Q13 earnings call. Results from its three-well Ocel Pad in the Warrior North prospect are also expected by the end of this year. In addition, REXX announced that following the fire in the Blue Racer Natrium processing facility, the company had secured interim processing capacity for production out of its Warrior North prospect and does not anticipate that this will materially affect its 3Q13 production volumes. Thus, the company has maintained its 3Q13 and full-year 2013 production guidance of 98.5 MMcfe/d and 92.5 MMcfe/d (at the midpoint) as well as its 2013 capex guidance range of $ MM. Finally, the company expects to provide production rates on two additional Upper Devonian wells in its Butler operated area, and currently anticipates that it will place the Baillie Trust pad (four Marcellus wells, two Upper Devonian wells) into sales by YE2013. Rosetta Resources (ROSE) Outperform, $62 TP We expect horizontal success in Reeves County, TX to be a big driver for ROSE going forward. With the recent Balmorhea completion report recently hitting the Texas Railroad Commission there will be a lot of discussion around this well result. The well had a reported 24-hour IP of 676 mboe/d (two-stream, 75% oil) from a 6,900 lateral though only 4,100 of the lateral appears to be completed. ROSE still anticipates spudding its initial operated Wolfcamp hz well in 4Q13. ROSE has also been discussing the prospectivity of the Upper Eagle Ford zone in its Gates Ranch area and is currently conducting two pilot tests landing an Upper Eagle Ford well between 55-acre spaced Lower Eagle Ford wells. The Upper Eagle Ford zone has of thickness compared to only 75 in the Lower Eagle Ford at Gates Ranch. Swift Energy (SFY) Neutral, $14 TP SFY recently announced that it has retained an advisor to divest its Central Louisiana assets and we expect the company to provide more color on the 3Q earnings call. The assets included in the potential divestiture are its Burr Ferry, Masters Creek, and South Bearhead Creek fields which represent 20.4 MMBoe of proved reserves (as of YE12). The company expects to close on a divestiture in 6-12 month timeframe. In addition, SFY expects to provide additional Eagle Ford well results where the company has highlighted that it is seeing improvements due to better lateral placement and fit-for-purpose drilling rigs, as well as optimized completion techniques. We expect SFY to provide more color on these improved techniques as well as the implied well cost reductions. We anticipate that SFY will provide limited information on its 2014 plans in this upcoming release as the company expects to release formal guidance in February The company expects to maintain a 2-rig program through year-end 2013 and ramp to a 4-rig program in Whiting Petroleum Corp. (WLL) Neutral, $65 TP We expect WLL to provide additional color and results from implementation of new completion techniques that are driving meaningful improvements in IP rates out of the company's Southern Williston and West Williston areas. Notably, although the new completion techniques cost similar to the prior technique utilizing sliding sleeves, plug & perf with cemented liners but adds ~5 days. WLL is currently running 18 rigs in the Williston, of which one is being kept in the new acquisition area. In the Sanish, the company is moving forward with downspacing tests in the Sanish moving from four Middle Exploration & Production 13

14 Bakken to seven Middle Bakken wells per section, where success would add an incremental 200 gross locations. WLL is also looking to test lower Three Forks potential in Hidden Bench. WLL is planning to significantly ramp the Niobrara where it has 121k net acres and is currently running two rigs with a third expected in mid-october, a fourth rig in January 2014 and a fifth rig by mid The company expects to eventually ramp up to 20 rigs long-term and develop the acreage within seven years. WLL is moving forward in the Niobrara drilling 16 wells (stacked Niobrara A and B with 40-acre effective spacing) per 960-acre spacing unit and is planning 6-well pilot testing 20-acre spacing across just the Niobrara B (expected results by 4Q13 earnings). Performance from recent Niobrara wells have exceeded the company's 400 MBoe type curve and WLL stated that they expect EUR's of 500 MBoe. The company plans to implement plug & perf with cemented liners and more proppant versus the old method of sliding sleeves with slickwater/crosslinked Gel to drive well performance improvement. Exploration & Production 14

15 Large-Cap E&P: Company Updates Anadarko Petroleum Corp. (APC) Outperform, $122 TP Estimates remain unchanged. We published our updated 2013 EPS/CPS at $4.20/$15.87 on October 9. See our note APC: the Next Big Thing is Here. Thesis: APC is blessed with several core franchise assets in the U.S. (Wattenberg, Eagle Ford, Permian), which provide a large inventory of lower-risk and high-return development drilling opportunities. We believe the Company's 600,000 gross-acre position in the Delaware Basin could be an emerging franchise asset with encouraging early-day well results. We believe shares are poised to re-rate once there is clarity around APC s potential liability associated with Tronox even assuming a reasonable worst case scenario. In our most recent buy-side survey, 23% of investors indicated interest in owning APC, but remained on the sidelines given perceived tail-risk. We see 30% upside to our target price, which is at parity with our NAV. Things to watch for: APC has stepped up its delineation efforts in the Delaware Basin, with 10 rigs in total. It has increased its rig count targeting the Wolfcamp to 6 rigs compared to 5 at the end of Q2. We anticipate new well results and additional color on the resource potential of this play. So far, APC has announced two wells in Ward and Loving Counties, with 24-hour IP rates of approximately 1,600 Boe/d and 1,000 Boe/d (threestream basis). One of the potential key themes will be increased capex spend to bring forward value given significant proceeds from monetiziations in The Company also could have results for its exploration well in Kenya (Kiboko) and appraisal wells in Brazil (Wahoo-5 and Itaipu-3). Apache Corp. (APA) Outperform, $105 TP Estimate revision: Our full-year 2013 EPS/CPS estimates move to $7.86/$23.12 from $7.90/$23.18 to reflect our updated commodity price deck (see Exhibit 10). Thesis: We reiterate our Outperform rating on APA and are raising our 12-month target price to $105 from $102 per share to reflect the long-term oil price increase to $82 from $80. While we are in the later innings of our self-help thesis, we believe upside from the company s key U.S. onshore assets as well as the buyback will drive outperformance from here. Further, we don t believe APA shares reflect the strong underlying performance of its Permian & Central regions, with average Permian producer having increased 55% versus 13% for APA YTD. We believe that this gap should narrow as the market focus shifts to APA's U.S. onshore portfolio. What to watch for: With market focus returning to US onshore properties, channel checks suggest APA's Permian and Central properties are outperforming expectations. APA has a meaningful acreage position, with 190,000 net acres prospective for the Wolfcamp horizontally. The company is in the early stages of horizontal development, with a prolific Wolfcamp prolific well in Upton County (Miller 36 HM #1) flowing at a peak IP of 1,241 MBoe/d (85% oil) from a 5,032 ft lateral. Meanwhile, we expect for APA to unveil more positive well results in the Central Region. Further questions are expected for Egypt as well as the company's restructuring process including asset sales. We believe the company will increase its divestiture target, with potential asset sales in the $7 to $8 billion range. Chesapeake Energy (CHK) Neutral, $22 TP Estimate revision: We are raising our full-year 2013 EPS/CPS estimates to $1.60/$7.17 from $1.44/$6.60 to reflect our updated commodity price deck (see Exhibit 10) as well as new production outlook. We increased our 2013 production forecast to 667 MBoe/d from 663 MBoe/d. Thesis: CHK is making some small steps in the right direction, but it is not there yet. While we are encouraged by the improving spending discipline, focus on operational efficiencies, Exploration & Production 15

16 and additional hedges, the shares continue to trade at premiums on cash flow and NAV. Reiterate Neutral. What to watch for: The key buy-side question would be CEO Doug Lawler's asset development plan after the portfolio review process. CHK has meaningful acreage in various quality basins, including Eagle Ford, Marcellus and Utica, but new management has yet to provide detailed thoughts around how they would manage this portfolio. We believe establishing core assets with proper capex allocation would be one of the main steps to drive upside to CHK shares. We also expect CHK to provide an update on its divestitures target, with year-to-date announced monetizations totaling $3.7 billion out of a $4-7 billion target. At this point, while the Company has more wood to chop to meet the low end of its asset sales target, it has closed its funding gap for 2013 and proceeds from further sales later this year could be used to pay down debt. Concho Resources (CXO) Neutral, $95 TP Estimate revision: We are reducing our full-year 2013 EPS/CPS estimates to $3.68/$12.00 from $3.74/$12.09 to reflect our lower Q4 WTI forecast of $ vs. $ previously. See Exhibit 10 for the detail of our commodity price deck update. We raised our NAV and target price estimate to $95 from $91 due to our higher long-term WTI price outlook ($82.00 vs. $80.00 previously). Thesis: CXO shares are trading at a ~20% premium to our updated NAV estimate. Based on our analysis of industry data from the Delaware Basin, we believe it is premature to increase our resource potential estimate related to observed horizontal activity thus far. Meanwhile, we note that our Northern Delaware Bone Spring type curve of 481 MBoe is above company guidance of 360 MBoe. That said, we see upside to our $95 per share updated NAV related to the company s horizontal Wolfberry program in the Midland Basin, where the company s initial four wells IP ed with 24-hour peak rates of 1,010 Boe/d and 30-day rates of 742 Boe/d. Our NAV only gives CXO modest acreage value for its Midland Basin acreage that is prospective horizontally in addition to its vertical Wolfberry program. Things to watch for: CXO's long-term growth rate and capex will be the key focus. On its Q213 call, the CEO spoke of a 15-20% long-term growth rate, while the Company's September investor presentation pointed to a 12% CAGR of oil production through We are modeling 17% annual oil growth through We believe CXO could announce a meaningful ramp up in rig-counts and capital spending in order to accelerate horizontal development. The Company has intriguing optionality to the Southern Delaware Basin (Reeves and Pecos Counties). On its Q2 call, CXO highlighted 11 wells with 24-hour peak IPs of 1,082 Boe/d (78% oil). However, the last two horizontal wells for CXO at its Big Chief lease in Reeves IP ed at 449 and 548 Boe/d released this month, suggesting that its Big Chief acreage has not yet been fully de-risked. We will closely watch for updates on this play, given the high level of investor interest in the Southern Delaware Wolfcamp. Denbury Resources (DNR) Outperform, $24 TP Estimate revision: We are tweaking our 2013 EPS/CPS estimates to $1.52/$3.64 from $1.53/$3.66 to incorporate our updated commodity price forecast. Thesis: Income and growth strategy presents a re-rating opportunity. In May, we upgraded DNR shares to outperform in anticipation the company would shift to an income and growth model. We came away from our recent roadshow with increased conviction that the potential shift to a balanced growth and income strategy, with a meaningful dividend component, will support a relative re-rating in DNR shares. While DNR's CEO was careful not to endorse our view or the magnitude of a potential dividend, it is clear that management sees the benefit of accelerating cash distributions to shareholders prior to 2017, with an evaluation ongoing. We came away from our recent roadshow with increased conviction that the potential shift to a balanced growth and income strategy, with a meaningful dividend component, will support a relative re-rating in DNR shares. That said, we do not expect the company to shift to an MLP structure. Exploration & Production 16

17 Things to watch for: We expect an update on the remediation progress in Delhi as well as management's estimated remediation expense. On June 13, DNR discovered that a mix of fluids CO2, saltwater, gas, and small amounts of oil were released at its Delhi field in North Louisiana. DNR has suspended CO2 injections at about a quarter of the Delhi field, which management estimated to reduce production by MBoe/d in Q3 and Q2. However, this impact will be partially offset by the timing of the reduction in their reversionary interest from 76% to 57% as it will now take longer to reach payout. We continue to wait for additional color on management's strategy shift to a growth and income model, but we do not anticipate to hear the full details until the November 11 th Analyst Day. EOG Resources (EOG) Outperform, $210 TP Estimates remain unchanged. We published our updated 2013 EPS/CPS at $7.61/$26.87 on October 9. Please see our note EOG: Horse is Still in the Barn. Thesis: We recently upgraded EOG shares to Outperform from Neutral to incorporate an increase in our NAV and higher oil production forecasts, which are underpinned by better than expected well performance in its key U.S. onshore liquids plays. Despite being a high expectation story that is well liked by the Street, we see several near and intermediate term catalysts that should support further outperformance, particularly as the shares trade at discounts to its large cap peers on our 2014 cash flow estimates and asset value. We recently raised our 12-month target price to $210 from $175, which is at parity with our revised NAV. What to look for: We believe management may be poised to raise its growth guidance given the positive rate of change in the Eagle Ford and Bakken. In particular, the increase in the growth rate would likely reflect better than expected performance from the western portion of EOG s acreage position in the Eagle Ford, a more robust Eagle Ford drilling program, and higher production from its burgeoning position in the Delaware Basin as well as Bakken. In particular, we noted a 30-day peak IP rate of 810 Boe/d for its Eagle Ford wells completed in 2013, which represents a 16% improvement relative to 700 Boe/d in Finally, we see potential for management to signal an increase in its Eagle Ford resource base given better than expected well performance. Our revised NAV forecast incorporates a 454 MBoe EUR in the Eagle Ford (NaR), upwards of company guidance of 400 (NaR). Noble Energy (NBL) Outperform, $70 TP Estimate revision: Our full year '13 EPS/CFPS estimates move to $3.34/$9.58 from $3.40/$9.70 to reflect the actual commodity prices vs. CS estimates and the impact from the Colorado floods. See Exhibit 10. Thesis: We reiterate our Outperform rating and raise our target price and NAV to $70 from $67.50 to reflect our higher long-term WTI forecast of $82.00 vs. $80.00 previously. While Q313 will be impacted by severe floods at Wattenberg, we expect the company s growth to get quickly back on track, with Wattenberg volumes above pre-flood levels. We believe the company s upcoming analyst meeting will highlight one of the most powerful rate-of-change stories in onshore E&P at Wattenberg, with successful down-spacing and extended lateral tests supporting further increases in its inventory and resource range. Meanwhile, the company has significant optionality to the drill bit, with high impact wells in Nicaragua, the U.S. GoM, Israel, and Nevada that will be decisioned in coming quarters, which adds unique optionality relative to its larger cap peers. Things to Watch out for: While we expect for NBL to limit significant updates to its upcoming December analyst meeting, the near-term focus of investors will be on the Israeli High Court decision regarding the gas export policy and the potential for NBL to close its JV transaction with Woodside. NBL already preannounced the impact from the floods so the market generally anticipates production to be in the lower-end of the Exploration & Production 17

18 guidance range, but the market will be looking for further management clarity regarding the potential ramp in DJ Basin volumes in 14 once conditions normalize. In addition, we would anticipate some incremental information on its extended lateral program at Wattenberg. Pioneer Natural Resources (PXD) Outperform, $209 TP Estimate revision: Our full year '13 EPS/CFPS estimates move to $4.53/$15.49 from $4.87/$16.16 to incorporate our updated commodity price deck (see Exhibit 10) as well as our revised production forecasts. We lowered our 2013 production estimate by 0.6 MBoe/d to MBoe/d from MBoe/d due to lower than expected Eagle Ford volumes in Q3, based on actual results of Reliance Industries, PXD's JV partner in the Eagle Ford. Thesis: PXD began the year with a stated goal of significantly increasing its NAV by confirming 3 BBoe of resource potential across 6 stacked intervals (Wolfcamp A, B and D, Middle Spraberry, Jo Mill and Lower Spraberry) in the Northern Midland Basin. PXD s thesis that multiple zones could be highly prospective throughout its 800,000+ acre position is gaining significant traction. While it s still early days, we believe there is meaningful upside to PXD's asset value as the company continues to derisk their Midland Basin acreage. Things to watch for: We anticipate six well results (two Wolfcamp B's, two Wolfcamp D's, Jo Mill and Lower Spraberry) in Martin and Midland Counties that would help PXD further connect the dots in its vast Northern Midland acreage. On the other hand, we lowered our production estimate for the quarter by 0.3% to MBoe/d (from MBoe/d), because of lower than expected Eagle Ford production implied by Reliance Industries' earnings release. We see downside risk to PXD's production as we are 1.6%, or 2.8 MBoe/d below consensus. However, given the size of the potential Northern Midland prize, we believe drilling results are much more important to the story than near-term production trends. Southwestern Energy (SWN) Underperform, $33 TP Estimate revision: Our full year '13 EPS/CFPS estimates move to $1.92/$5.36 from $1.93/$5.59 due to our updated commodity price deck. Thesis: Our cautious stance on SWN rests on valuation grounds (SWN trades at 110% our NAV vs. the large cap average of 91%) and the fact that well performance in the company s key Fayetteville Shale play has reached a plateau. SWN has an outstanding position in the Marcellus Shale, but we argue this is already reflected in the company s premium valuation. That said, SWN has some enviable scarcity value in E&P as one of the few quality large cap pure plays on natural gas. Things to watch for: Last quarter, SWN announced a 9% increase in full-year capex guidance to $2,250 MM from $1,985 MM. As a result, SWN plans to drill 455 (mid-point of ) and 100 wells in Fayetteville and Marcellus vs. the previous plan of (midpoint of ) and 87 wells. Interestingly, management only raised full-year production guidance by a disproportionate 1.6%. We believe the focus of Q3 would be on incremental production growth in response to the additional spending. Also, we await an update on their New Ventures program as well as potential for M&A as management looks to add a leg to their liquids growth strategy. In addition, the market will be looking for management s outlook for long-term basis differentials in the Marcellus given the recent widening in differentials. SandRidge Energy (SD) Neutral, $4.90 TP Thesis: While there are clear signs of progress on many fronts (Mississippian growth and well performance, reduced well costs, and intriguing Middle Mississippian results), we continue to expect a range-bound stock given continued outspend for the foreseeable future. The elephant in the room remains the persistent funding gap. Until this longer-term concern is addressed with concrete steps or consistent Mississippian outperformance, we Exploration & Production 18