OIL AND GAS Mid & Small Cap E&P Market Weight 3Q preview: Prisoner s dilemma for SMID-Cap E&P? Delicate balancing act between positive OPEC commentary and a litany of risks We have noticed that the tug of war between bulls and bears around our coverage universe now skews modestly bullish as evidenced by the recent rally in commodity beta plays alongside the curve and recent marketing discussions. Call us cynical but there are too many wildcards to change our defensive stance, i.e., (1) OPEC cut details; (2) election results; (3) dollar impacts around potential interest rate changes; (4) sluggish global growth; and (5) premium valuations to take us off our Market weight for the group. This go around it may be US unconventional that is the bad actor While OPEC s track record around cohesion has not been great, these are clearly unprecedented times for many of the countries involved. The team s view is that there is too much at stake to not cut a deal in November and at least initially, we think there will be sufficient compliance to effectively clean up the inventory overhang within the next 12-18 months. This go around, it is US E&P that appears to have the upper hand (1) core drilling with lower break-evens; (2) efficiency gains especially cycle times; (3) cost controls; (4) improved balance sheet/liquidity; and (5) an improved curve for hedging and therefore provide the greatest risk around supply. Although our discussions with managements suggest continued caution around 17, it is clear our universe of stocks are much better positioned to accelerate growth, which outside of quality basin exposure, could be viewed negatively in our opinion. Company Price Rtg Antero Resources (AR) $27.30 OP Cabot Oil and Gas (COG) $23.86 PP Cimarex Energy (XEC) $139.80 OP Concho Resources (CXO) $138.69 OP EP Energy (EPE) $4.00 UP EQT Corporation(EQT) $70.35 OP Gulfport Energy(GPOR) $29.32 PP Range Resources(RRC) $38.04 PP Rice Energy (RICE) $27.82 OP SM Energy (SM) $40.14 PP Southwestern Energy (SWN) $13.36 UP Whiting Petroleum $9.01 UP (WLL) Source: FactSet/Wolfe Research OP=Outperform, PP=Peer Perform, UP=Underperform, NR=Not Rated We stick to our knitting Our preferences remain unchanged. We like the companies that have assets that can grow in a $45 - $55/bbl outlook (margin expansion opportunities in strong price environments, but also cash flow defensiveness if we re-test the lows of that range). Moreover, our preferences include those companies that have balance sheet and liquidity to help accelerate drilling activity if the risk profile returns back to the upside. We would use weakness to buy our OP-rated stocks are AR, CXO, EQT, RICE, and XEC and beta rallies to sell our UP-rated stocks EPE, SWN, and WLL. Companies that may surprise to the upside on reporting AR on capital efficiency, hedging, and differentiated realized pricing. SM on portfolio highgrading theme, and GPOR on Utica dry gas upside and realized pricing. Company that may disappoint on reporting COG on 17 capex given uncertainty around timing of Atlantic Sunrise approval. Bob Parija, CFA (646) 582-9274 Bparija@wolferesearch.com DO NOT FORWARD DO NOT DISTRIBUTE DOCUMENT CAN ONLY BE PRINTED TWICE This report is limited solely for the use of clients of Wolfe Research. Please refer to the DISCLOSURE SECTION located at the end of this report for Analyst Certifications and Other Disclosures. For Important Disclosures, please go to www.wolferesearch.com/disclosures or write to us at Wolfe Research, LLC, 420 Lexington Avenue, Suite 648, New York, NY 10170 WolfeResearch.com Page 1 of 15
Investment conclusion As a team we have marked to market 3Q commodity prices and made several adjustments to our outlook. We have increased our 16/ 17 WTI oil price outlook by 4% and 16/ 17 natgas price outlook by a more modest 2%. The net effect of these changes is not dramatic -- 3Q M2M translates to an average -1% drop vs. our prior estimate and average +1%/+1% changes for our FY16/FY17 estimates with a more bearish outlook on NGLs dampening some of the improvement in oil and natgas realizations. Relative to the Street, we are on average -5% below the Street on 3Q EBITDAx due in large part, we suspect, to weaker realizations in Appalachia natgas and a seasonal drop in ethane and propane pricing. See Exhibits 1-4. Exhibit 1: 3Q16E Wolfe Research EBITDAx vs. Consensus Source: Wolfe Research Estimates, Company Reports, Factset Exhibit 2: 3Q16 Natural Gas Basis Differentials, Q/Q and Y/Y Source: Bloomberg Finance LP, Wolfe Research WolfeResearch.com Page 2 of 15
Exhibit 3: 3Q16 NGL Pricing, Q/Q and Y/Y Note: conversion is bbl = 42 gals. Source: Bloomberg Finance LP, Wolfe Research estimates Exhibit 4: 3Q16 Crude Oil Basis Differentials, Q/Q and Y/Y Source: Bloomberg Finance LP, Wolfe Research WolfeResearch.com Page 3 of 15
For 2017, we are on average 1% above Street consensus, but here the devil is in the details. As we pointed out earlier, companies with higher oil leverage benefitted most while those with higher NGLs in the production stream were impacted by our concerns around ethane and propane pricing. As a matter of course, we typically reset our target prices alongside quarterly reporting. So while our NAVs/mid-cycle EBITDAx estimates were modestly impacted by these 16 changes, we have chosen to keep our TPs intact pending the conclusion of reporting where we will also introduce 2018 estimates alongside expected revisions to 2017 capex outlooks. See our team comp table in Exhibit 20 below for more details. Too many wildcards to change our defensive stance Despite the recent lift in the commodity curves (Exhibits 5 and 6), we remain defensive in our outlook and stock preferences. We believe there remains too much uncertainty around (1) OPEC cut details; (2) election results; (3) potential interest rate changes; (4) sluggish global growth offsetting some positives in the US; and (5) premium valuations to take us off our Market weight for the group. Our preferences remain unchanged. We like the companies that have assets that can grow in a $45 - $55/bbl outlook that have margin expansion opportunities in strong price environments, but also cash flow defensiveness if we re-test the lows of that range. Moreover, our preferences include those companies that have balance sheet and liquidity to help accelerate drilling activity if the risk profile returns back to the upside. We would use weakness to buy our OP-rated stocks are AR, CXO, EQT, RICE, and XEC and recent strength to sell our UPrated stocks EPE, SWN, and WLL that have rallied on commodity beta. Exhibit 5: WTI Forward Curve over past 12 Months Exhibit 6: HH Forward Curve over past 12 Months Note: As of 10/12/16 Source: Bloomberg Finance LP, Wolfe Research Note: As of 10/12/16 Source: Bloomberg Finance LP, Wolfe Research WolfeResearch.com Page 4 of 15
($/bbl) Elizabeth May - emay@wolferesearch.com - Do not forward Commodity price deck update We marked our commodity deck to market for the recently completed 3Q The basic shape of the oil price recovery remains the same in our forecast, but the tentative OPEC agreement, which we believe is more likely than not to be ratified and at least initially, we think there will be sufficient compliance to effectively clean up the inventory overhang with 12-18 months. As a result we are more bullish than the strip starting in 1H17, and increasingly so over time. Assuming OPEC market management, we expect a $45-60/bbl range from now until mid-year 2017, then a shift upwards to a $55-70/bbl range in 2H17, and $70+ 2018 and beyond. Our forecasts for Brent, WTI and Henry Hub natgas, versus the strip, are captured in the summary charts below. Exhibit 7: Wolfe Research Brent forecast by quarter vs. strip Exhibit 8: Wolfe Research WTI forecast by quarter vs. strip 75 70 65 60 We have made only minor changes to our outlook going forward, though of course we have marked 4Q16 upwards to reflect the current price. The expectation here is that an OPEC freeze will accelerate the "clean up" of inventory throughout 2017, and drive a steadily rising price. 2018 prices will need to incentivize a rapid acceleration of US output. 80 70 The market will need US unconventional to be accelerating as quickly as possible from 2H17 forward, while OPEC pulls global barrels back, so Brent-WTI should re-widen somewhat - we are above strip less for WTI> 2015/16 underinvestment manifests starting in 2018/19 55 60 50 45 The strip is less liquid beyond six months and tends to "smear" the current trend 50 40 35 40 WTI strip goes flat at $54/bbl beyond 2017 30 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2018 Current Strip Wolfe Research estimate 30 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2018 Current Strip Wolfe Research estimate Source: Bloomberg Finance LP, Wolfe Research estimates Source: Bloomberg Finance LP, Wolfe Research estimates Exhibit 9: Wolfe Research NYMEX nat gas by quarter vs. strip 4.50 4.25 4.00 3.75 3.50 3.25 3.00 2.75 2.50 2.25 2.00 1.75 1.50 Anything above $2.75 increasingly encourages coal back into the mix, so we expect some gas-to-coal switching in 2017 as we stay near $3/mcf, with a drop below that price in the warmer quarters. Longer-term increasing LNG will keep us above $3/mcf. 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16 1Q17 2Q17 3Q17 4Q17 2018 Current Strip Wolfe Research estimate For natgas, we are modestly bearish relative to the strip, at least for the first half of 2017, as we expect some gas-to-coal switching driven by cheap coal and $3/mcf+ gas. Anything above about $2.75 encourages coal back into the mix, and gas near $3 will prompt utilities to burn more coal next year. We had record heat in the SE/SW in 2Q/3Q16, and therefore record power gen. Unless that repeats we expect natgas in the $2.75-$3.00 range for the summer quarters next year. Beyond that we expect increasing LNG demand, coupled with some coal plant retirement, to nudge nat gas prices up above $3/mcf. We are above the strip from 2018 on. Our detailed commodity deck, with both historical prices and our forecast by quarter is below. We will add quarterly expectations for 2018 when we update estimates for 4Q, and add 2018 quarterly forecasts for the companies. Source: Wolfe Research WolfeResearch.com Page 5 of 15
Exhibit 10: Wolfe Research new commodity price deck $/bbl 2014 2015 1Q16 2Q16 3Q16 4Q16E 2016E 1Q17E 2Q17E 3Q17E 4Q17E 2017E COMMODITY PRICES Brent 98.91 52.68 35.21 47.03 47.02 54.00 45.82 56.00 58.00 62.00 67.00 60.75 WTI 93.00 48.66 33.63 45.64 44.92 51.75 43.99 53.50 55.50 59.25 64.00 58.06 Midland 86.23 48.43 33.52 45.18 44.59 51.25 43.64 53.00 55.00 58.75 63.50 57.56 LLS 96.72 52.33 35.31 47.40 46.52 53.50 45.68 55.25 57.25 61.00 65.75 59.81 Clearbrook 87.89 45.78 31.89 45.10 43.46 50.25 42.68 52.00 53.50 57.25 62.00 56.19 Syncrude 91.80 48.84 36.03 47.45 44.85 50.75 44.77 52.50 54.50 58.25 63.00 57.06 ANS 98.23 51.53 32.29 44.55 43.44 50.25 42.63 52.00 54.00 57.75 62.50 56.56 WTS 87.00 49.00 33.30 44.68 43.40 50.25 42.91 52.50 54.50 58.25 63.00 57.06 Mars 93.00 48.00 30.15 42.06 41.83 49.00 40.76 50.75 52.75 56.50 61.25 55.31 Maya 85.69 44.08 26.29 37.87 39.05 45.50 37.18 47.25 49.25 53.00 57.75 51.81 WCS 74.43 35.64 20.26 32.84 30.67 37.75 30.38 40.00 42.50 46.25 51.00 44.94 JCC Henry Hub ($/mmbtu) 4.35 2.64 1.98 2.25 2.79 3.15 2.54 3.25 2.80 2.80 3.35 3.05 UK NBP ($/mmbtu) 8.28 6.65 4.30 4.50 4.10 5.00 4.48 5.50 6.00 6.50 7.50 6.38 CRUDE DIFFERENTIALS Brent-WTI 5.80 4.00 1.58 1.39 2.10 2.25 1.83 2.50 2.50 2.75 3.00 2.69 Brent-LLS 2.19 0.35 (0.10) (0.37) 0.50 0.50 0.13 0.75 0.75 1.00 1.25 0.94 Brent-Clearbrook 11.01 6.91 3.32 1.93 3.56 3.75 3.14 4.00 4.50 4.75 5.00 4.56 Brent-Midland 12.68 4.25 1.69 1.85 2.43 2.75 2.18 3.00 3.00 3.25 3.50 3.19 LLS-WTI 3.64 3.67 1.68 1.76 1.60 1.75 1.70 1.75 1.75 1.75 1.75 1.75 WTI-Midland 6.86 0.23 0.11 0.46 0.33 0.50 0.35 0.50 0.50 0.50 0.50 0.50 WTI-Clearbrook 5.19 2.88 1.74 0.54 1.46 1.50 1.31 1.50 2.00 2.00 2.00 1.88 WTI-Syncrude 1.28 (0.18) (2.40) (1.81) 0.07 1.00 (0.79) 1.00 1.00 1.00 1.00 1.00 WTI-ANS (5.14) (2.87) 1.34 1.09 1.48 1.50 1.35 1.50 1.50 1.50 1.50 1.50 LLS-Mars 3.94 4.19 5.16 5.34 4.69 4.50 4.92 4.50 4.50 4.50 4.50 4.50 WTI-WTS 5.89 (0.22) 0.33 0.96 1.52 1.50 1.08 1.00 1.00 1.00 1.00 1.00 Brent-Maya 13.22 8.61 8.92 9.16 7.97 8.50 8.64 8.75 8.75 9.00 9.25 8.94 LLS-Maya 11.04 8.25 9.02 9.53 7.47 8.00 8.51 8.00 8.00 8.00 8.00 8.00 WTI-Maya 7.40 4.58 7.34 7.77 5.87 6.25 6.81 6.25 6.25 6.25 6.25 6.25 WTI-WCS 18.65 13.02 13.37 12.80 14.25 14.00 13.61 13.50 13.00 13.00 13.00 13.13 Brent-WCS 24.48 17.04 14.95 14.19 16.35 16.25 15.44 16.00 15.50 15.75 16.00 15.81 Source: Bloomberg Finance LP, Wolfe Research estimates WolfeResearch.com Page 6 of 15
Estimate Updates and vs. Consensus We summarize our EBITDAx and EPS updates below (See Exhibits 11 and 12), which now reflect M2M for 3Q16 and updates to our commodity price deck, post OPEC announcement. Exhibit 11: EBITDAx and EPS changes to reflect 3Q mark-to-market and commodity deck changes Wolfe Estimates Prior Wolfe Estimates % Difference 3Q16A 2016E 2017E 3Q16E 2016E 2017E 3Q16A 2016E 2017E WTI NYMEX ($/bbl) 44.92 43.99 58.06 44.00 42.32 56.00 2% 4% 4% HH NYMEX ($/mcf) 2.79 2.54 3.05 2.75 2.50 3.00 1% 2% 2% Wolfe EBITDAx ($mn) Prior Wolfe EBITDAx ($mn) % Difference 3Q16E 2016E 2017E 3Q16E 2016E 2017E 3Q16E 2016E 2017E AR 348 1,409 1,670 353 1,398 1,616-1% 1% 3% COG 131 589 1,204 153 587 1,166-14% 0% 3% EQT 249 1,194 1,490 270 1,205 1,517-8% -1% -2% RRC 125 587 1,013 130 576 1,064-4% 2% -5% SWN 172 670 1,081 145 612 1,019 18% 9% 6% XEC 177 688 1,085 180 678 1,066-1% 1% 2% CXO 401 1,558 1,628 399 1,538 1,608 1% 1% 1% WLL 219 831 1,067 226 840 1,035-3% -1% 3% EPE 233 1,005 673 234 1,012 649-1% -1% 4% SM 202 817 870 186 793 896 9% 3% -3% RICE 147 559 955 149 565 936-1% -1% 2% GPOR 95 416 566 102 422 553-7% -1% 2% Simple Avg 2,498 10,324 13,302 2,527 10,227 13,124-1% 1% 1% Weighted Avg -1% 1% 1% Wolfe EPS Prior Wolfe EPS $.01 Difference 3Q16E 2016E 2017E 3Q16E 2016E 2017E 3Q16E 2016E 2017E AR 0.16 0.64 0.58 0.17 0.63 0.49-0.01 0.02 0.08 COG -0.06-0.19 0.48-0.03-0.19 0.43-0.02 0.00 0.05 EQT -0.56-0.96-0.64-0.48-0.92-0.61-0.08-0.04-0.03 RRC -0.18-0.42 0.07-0.16-0.41 0.17-0.02-0.01-0.10 SWN 0.01-0.04 0.31-0.03-0.18 0.24 0.05 0.14 0.08 XEC 0.30 0.89 2.19 0.28 0.73 2.06 0.01 0.16 0.13 CXO 0.09 0.16-0.17 0.11 0.19-0.26-0.02-0.03 0.09 WLL -0.26-1.84-0.62-0.25-1.82-0.64-0.01-0.02 0.02 EPE 0.14 0.72-0.01 0.15 0.74-0.07-0.01-0.02 0.06 SM -0.58-2.25-1.80-0.72-2.39-1.51 0.14 0.13-0.28 RICE 0.04 0.11 0.29 0.04 0.13 0.25-0.01-0.02 0.05 GPOR 0.08 0.62 0.79 0.08 0.63 0.70 0.00-0.01 0.09 Simple Avg (1) (3) 1 (1) (3) 1 0.00 0.03 0.02 Weighted Avg 0.01 0.30 0.23 Source: FactSet, company reports, Wolfe Research estimates WolfeResearch.com Page 7 of 15
Exhibit 12: Wolfe Research Estimates vs. Consensus (as of 10.11.16) Wolfe EBITDAx ($mn) Consensus EBITDAx ($mn) % Difference 3Q16E 2016E 2017E 3Q16E 2016E 2017E 3Q16E 2016E 2017E AR 348 1,409 1,670 346 1,412 1,469 1% 0% 14% COG 131 589 1,204 155 598 1,115-15% -1% 8% EQT 249 1,194 1,490 276 1,238 1,707-10% -4% -13% RRC 125 587 1,013 141 657 1,100-12% -11% -8% SWN 172 670 1,081 206 698 1,230-17% -4% -12% XEC 177 688 1,085 192 657 1,078-8% 5% 1% CXO 401 1,558 1,628 419 1,580 1,650-4% -1% -1% WLL 219 831 1,067 205 776 949 7% 7% 12% EPE 233 1,005 673 246 1,025 650-5% -2% 4% SM 202 817 870 197 797 868 3% 3% 0% RICE 147 559 955 145 560 883 1% 0% 8% GPOR 95 416 566 93 390 526 2% 7% 8% Simple Avg 2,498 10,324 13,302 2,620 10,388 13,225-5% 0% 2% Weighted Avg -5% -1% 1% Wolfe EPS Prior Wolfe EPS $.01 Difference 3Q16E 2016E 2017E 3Q16E 2016E 2017E 3Q16E 2016E 2017E AR 0.16 0.64 0.58 0.17 0.63 0.49-0.01 0.02 0.08 COG -0.06-0.19 0.48-0.03-0.19 0.43-0.02 0.00 0.05 EQT -0.56-0.96-0.64-0.48-0.92-0.61-0.08-0.04-0.03 RRC -0.18-0.42 0.07-0.16-0.41 0.17-0.02-0.01-0.10 SWN 0.01-0.04 0.31-0.03-0.18 0.24 0.05 0.14 0.08 XEC 0.30 0.89 2.19 0.28 0.73 2.06 0.01 0.16 0.13 CXO 0.09 0.16-0.17 0.11 0.19-0.26-0.02-0.03 0.09 WLL -0.26-1.84-0.62-0.25-1.82-0.64-0.01-0.02 0.02 EPE 0.14 0.72-0.01 0.15 0.74-0.07-0.01-0.02 0.06 SM -0.58-2.25-1.80-0.72-2.39-1.51 0.14 0.13-0.28 RICE 0.04 0.11 0.29 0.04 0.13 0.25-0.01-0.02 0.05 GPOR 0.08 0.62 0.79 0.08 0.63 0.70 0.00-0.01 0.09 Simple Avg (1) (3) 1 (1) (3) 1 0.00 0.03 0.02 Weighted Avg 0.01 0.30 0.23 Source: FactSet, company reports, Wolfe Research estimates WolfeResearch.com Page 8 of 15
Production & CAPEX Calls will be dominated by questions on 17 growth/capex/liquidity Based on our discussions with the companies and observing the numerous M&A transactions in the space recently (RICE &VEI (NC), CXO & REI (NC), RRC & MRD (NC).); investors/traders continue to have growth on the brain, despite management teams remaining conservative and guarded around their 2017 outlooks. The market may want these companies to discuss growth, but companies are holding firm to more modest outlooks while stressing flexibility to add rigs if pricing firms longer term. Below, we walk through what we think will be the key 3Q conference call focal points, starting with 17 production growth. We believe several of our higher quality names and recent acquirers will reiterate or announce differentiated production growth including RICE (75% if the VEI acquisition closes), RRC (34% with MRD acquisition), and AR/GPOR (both with 25% organic growth). We would note all three of our UP rated stocks WLL (-8% decline), SWN (flat), and EPE (-8% decline) along with PP rated SM have the most scope due to commodity leverage to increase capex with a more favorable curve. Exhibit 13: 2017E Production Growth Note, RICE, RRC, and CXO reflect acquisitions of VEI (NC), MRD (deal closed 9.15.16), and Reliance Energy (private), respectively Source: Company Reports, Wolfe Research estimates Exhibit 14: Hedging Gains (Losses) as a % of 16E E&P CAPEX Exhibit 15: Hedging Gains/Losses as a % of 17 E&P CAPEX Source: Company Reports, Wolfe Research estimates Source: Company Reports, Wolfe Research estimates WolfeResearch.com Page 9 of 15
In Exhibit 14 and 15 above we highlight hedging gains and losses as a percentage of 16 and 17 cash capex with the point that the drop in strip pricing over the 2015 calendar year had a significant adverse impact on 17 hedges. With the curve now on the rebound, we believe our coverage universe will be actively hedging 17 and 18 production alongside the improvement in 3Q pricing. We believe the companies most likely to announce increases include COG and SWN on the natgas side and WLL, EPE, and RRC on the liquids/oil side. Balance Sheet and Liquidity In Exhibits 16-19 below, we highlight net debt and liquidity comparisons across our coverage universe. We would note, that as a group, our coverage universe has dramatically improved debt metrics and liquidity, in part, due to issuing equity (AR, COG, CXO, XEC) and in part to swapping maturities and vanilla debt for preferreds (SWN and WLL). See Exhibit 19 for the outstanding debt distribution and weighted average coupon rate of this debt for each company we cover. SWN is the only company we cover which has debt due in 2017 and only WLL/SWN/EQT/COG with debt due in 2018. The majority of the companies we cover used the lower commodity prices throughout the year to focus on balance sheet repair/strength. WolfeResearch.com Page 10 of 15
Exhibit 16: Net Debt/EBITDAX '17E Source: Company Reports, Wolfe Research estimates Exhibit 17: Liquidity Coverage Note: We define liquidity multiple as 2016 YE Liquidity + 2017 pre-wc OCF / 2017E cash CAPEX Source: Company reports, Wolfe Research estimates WolfeResearch.com Page 11 of 15
Exhibit 18: 2016 and 2017 Liquidity Detail 2016 Liquidity AR COG EQT RRC SWN XEC CXO EPE SM WLL RICE GPOR ($mn) Borrowing base/commitment upside 6,000 3,200 2,250 3,000 2,000 1,000 3,250 1,650 1,350 2,600 2,200 700 Bank Commitments 5,500 1,600 2,250 2,000 2,000 1,000 2,500 1,650 1,250 2,500 2,200 700 YTD Letters of Credit or CP (708) 0 0 (232) (169) (3) 0 (34) 0 (2) (214) (206) Estimated Current Borrowings (1,327) (393) 0 (641) (1,632) (3) 0 (650) (282) (473) (487) (182) Ending Cash Balance 293 1,085 1,303 86 1,280 706 474 8 292 466 567 372 2016 YE Liquidity 4,466 2,292 3,553 1,445 1,648 1,703 2,974 1,008 1,260 2,493 2,280 890 2017E Liquidity Discretionary Cash Flow 1,354 1,071 1,276 795 693 1,006 1,450 400 620 781 905 455 Cash Capex (2,003) (836) (2,092) (791) (759) (876) (1,524) (534) (933) (647) (1,469) (625) 2017E YE Liquidity 3,817 2,527 2,738 1,449 1,583 1,834 2,900 874 946 2,627 1,716 720 Multiple of '17 capex 1.9 3.0 1.3 1.8 2.1 2.1 1.9 1.6 1.0 4.1 1.2 1.2 Bank revolvers AR COG EQT RRC SWN XEC CXO EPE SM WLL RICE GPOR Maturity Date May 19 April 20 Feb 19 Oct 19 Dec 20 Oct 20 May 19 May 2019 Dec 19 Dec 19 Dec 19 June 18 Redetermination Semi-annual Annual Annual Annual Semi-annual Semi-annual Semi-annual Semi-annual Next Estimated Redetermination Oct 16 April 17 May 17 May 17 Nov 16 Oct 16 May 17 May 17 Secured/Unsecured Senior Secured Unsecured Unsecured Senior Secured Unsecured Senior Unsecured Secured Secured Secured Senior Secured Senior Secured Senior Secured Comments *Includes Antero Midstream Senior Secured Revoling Credit Facility Effective April 19, 2016, borrowing base was reduced from $3.4 billion to $3.2 billion. The available commitments were reduced to $1.6 billion at the time of redetermination. *Includes EQM Credit Facility Source: Company Reports, Wolfe Research estimates Pro Forma for MRD- In June '16, the Terminated MRD's Company reduced credit facility in its existing $2.0bn acquisition process credit facility to $66mm and into a new credit agreement for $1,934mm, a $1,191mm secured term loan and a new $743mm unsecured revolving credit facility Pro-Forma for Reliance Acquisition In May 2016, at semi-annual redetermination the borrowing base of the RBL Facility was reduced to $1.65 billion Post announcment of closing of Permian Basin Acquistion, borrowing base increased to $1.35bn from $1.25bn Upon closing of the sale of the North Ward Estes Properties on July 27, 2016, the borrowing base was reduced to $2.6 billion from $2.75 billion *Includes RICE, RMH, RMP Credit Facilties-RICE revolver upsized from $750MM to $1B. RMP revolver upsized from $450MM to $850MM Exhibit 19: Outstanding Debt Maturity Schedule Note: Includes all debt outstanding excluding credit facilities Source: Bloomberg Finance LP, Wolfe Research WolfeResearch.com Page 12 of 15
Exhibit 20: Valuation Comparison (as of 10/12/2016) Bloomberg Consensus Wolfe Research Estimates Company Rec Target Share Mkt Cap Debt / Div yld P/E EV/EBITDA Price/Earnings EV/EBITDAX EV/DACF price ($) ($B) Capital Current 2015 2016e 2017e 2015 2016e 2017e 2015 2016e 2017e 2015 2016e 2017e 2015 2016e 2017e Global Integrateds ExxonMobil UP 78 87.13 361.3 16.5% 3.4% 22.8x 39.1x 20.0x 9.7x 11.9x 8.2x 23.0x 36.6x 92.1x 9.5x 10.7x 33.5x 13.0x 15.5x 45.1x Chevron OP 115 102.15 192.7 15.0% 4.2% 28.1x 86.4x 22.4x 8.3x 10.1x 6.5x 31.3x 98.3x 153.0x 7.8x 8.3x 23.0x 11.7x 10.7x 27.6x Royal Dutch Shell a 1,816 173.0 14.0% 6.2% 15.0x 26.1x 13.6x 8.3x 8.9x 6.2x Royal Dutch Shell b 1,899 173.0 14.0% 6.2% 15.7x 27.4x 14.3x 8.3x 8.9x 6.2x Total SA 40.74 109.4 19.9% 5.8% 11.5x 14.9x 11.5x 6.1x 7.6x 5.8x BP 427.70 91.7 21.1% 5.2% 16.9x 30.2x 15.5x 6.4x 7.2x 5.4x Simple Avg 16.7% 5.2% 18.3x 37.3x 16.2x 7.9x 9.1x 6.4x 27.1x 67.5x 122.6x 8.7x 9.5x 28.3x 12.3x 13.1x 36.3x Wgtd Avg 16.2% 4.8% 19.8x 40.3x 17.3x 8.4x 9.9x 6.8x 25.9x 58.1x 113.3x 8.9x 9.9x 29.9x 12.5x 13.8x 39.0x Large Cap NA E&P ConocoPhillips PP 43.47 53.8 34.7% 2.3% NA NA 98.3x 10.2x 13.9x 7.6x NA NA NA 6.6x 14.9x 7.7x 9.6x 14.3x 8.6x Occidental OP 87 74.00 56.5 15.7% 4.1% NA NA 55.8x 11.8x 16.5x 9.8x 395.8x NA 98.5x 10.4x 15.1x 8.9x 17.7x 20.4x 10.3x Suncor PP 37.19 61.9 20.7% 3.1% 33.0x NA 29.3x 8.9x 13.3x 7.9x 75.2x NA 722.1x 12.1x 13.1x 42.2x 10.3x 15.6x 41.9x EOG OP 100 96.30 53.0 30.3% 0.7% NA NA 190.7x 14.2x 21.2x 12.5x 1551.3x NA 96.2x 14.5x 21.1x 11.3x 15.3x 23.3x 11.9x Anadarko OP 79 63.93 35.4 48.9% 0.3% NA NA NA 11.3x 13.3x 8.6x NA NA NA 11.6x 14.1x 7.8x 12.8x 19.3x 10.1x Canadian Natural PP 43.05 47.5 37.9% 2.1% NA NA 43.5x 11.7x 16.5x 9.1x 179.1x NA 29.7x 12.0x 16.8x 8.3x 11.0x 17.9x 8.9x Apache PP 62.71 23.8 63.4% 1.6% NA NA 53.1x 8.6x 11.1x 7.8x NA NA 24.9x 9.1x 11.0x 6.8x 10.0x 14.8x 9.9x Hess PP 51.96 16.5 14.5% 1.9% NA NA NA 8.9x 16.5x 9.0x NA NA NA 8.1x 8.7x 7.7x 9.4x 27.0x 9.3x Devon Energy PP 44.56 23.3 49.6% 0.5% 18.1x NA 33.4x 7.9x 16.5x 10.7x 17.6x NA 23.8x 7.1x 16.8x 9.6x 6.4x 20.7x 10.4x Pioneer Natural OP 203 190.91 32.4 21.3% 0.1% NA NA 292.8x 18.8x 18.4x 14.1x NA NA 181.5x 19.0x 17.1x 12.9x 35.4x 22.3x 14.3x Marathon Oil PP 14.94 12.7 24.6% 1.3% NA NA NA 8.8x 13.0x 7.8x NA NA 119.3x 9.1x 11.1x 7.0x 9.7x 13.4x 7.2x Noble Energy OP 49 35.59 15.3 40.7% 1.1% 624.4x NA NA 9.6x 10.2x 8.5x 67.6x NA NA 8.0x 9.7x 8.3x 9.4x 11.1x 9.0x Continental 52.57 19.7 60.3% 0.0% NA NA NA 13.9x 16.1x 12.0x Whiting Petroleum UP 6.9 9.01 2.5 52.0% 0.0% NA NA NA 5.5x 9.4x 7.9x NA NA 4.8x 8.2x 6.8x 13.1x Cenovus 15.31 12.8 16.3% 1.3% NA NA NA 7.5x 16.2x 9.4x Encana 14.57 13.9 44.4% 0.4% NA NA 44.5x NA 19.6x 10.0x Chesapeake 6.29 5.6 80.5% 0.0% NA NA 7.5x 7.4x 16.2x 8.6x Concho Resources OP 147 138.69 19.5 30.9% 0.0% 130.0x NA NA 13.0x 14.2x 13.6x 142.3x NA NA 13.5x 14.8x 14.2x 17.6x 17.9x 18.2x Cimarex Energy OP 134 139.80 13.3 16.5% 0.2% NA 225.1x 40.0x 17.8x 21.7x 12.9x NA 174.0x 66.6x 18.5x 20.9x 13.2x 20.7x 23.2x 14.3x EQT OP 78 70.35 12.2 13.4% 0.1% 124.7x NA 153.3x 12.1x 12.3x 9.4x 101.1x NA NA 14.3x 14.1x 11.3x 14.3x 15.5x 13.2x Cabot Oil & Gas PP 23.86 11.1 50.2% 0.3% NA NA 52.0x 15.5x 19.7x 10.8x 179.3x NA 49.9x 14.6x 20.4x 10.0x 17.2x 24.0x 11.2x SM Energy PP 40.14 3.5 0.0% 0.0% NA NA NA 5.5x 7.6x 6.9x NA NA NA 5.7x 7.9x 7.4x 8.1x 10.8x 10.4x Southwestern Energy UP 11 13.36 6.6 49.0% 0.6% 80.0x 318.1x 18.0x 9.4x 18.1x 10.4x 83.3x NA 42.5x 7.4x 14.9x 9.3x 6.8x 34.7x 14.5x Rice Energy OP 34 27.82 5.5 38.8% 0.0% 1070.0x NA 95.6x 18.7x 13.2x 8.3x 142.0x 258.4x 95.3x 17.2x 13.2x 7.7x 20.6x 13.7x 8.1x Range Resources PP 38.04 9.4 49.0% 0.2% 116.7x NA NA 13.5x 19.3x 10.8x 78.5x NA 508.6x 14.3x 21.9x 12.7x 15.5x 32.1x 16.2x Antero Resources OP 31 27.30 8.4 39.1% 0.0% 54.9x 45.7x 113.3x 11.5x 10.0x 9.4x 47.9x 42.6x 11.1x 9.7x 8.1x 13.9x 12.5x 12.5x Murphy Oil UP 25 28.72 4.9 32.9% 3.5% NA NA 261.1x 5.2x 8.3x 5.6x NA NA 57.4x 5.8x 8.6x 5.4x 6.8x 11.7x 11.7x Gulfport Energy PP 29.32 3.7 27.9% 0.0% NA 44.6x 34.0x 11.6x 10.8x 7.9x NA 47.1x 37.0x 12.5x 10.8x 7.9x 13.3x 13.4x 9.9x EP Energy UP 3.6 4.00 1.0 88.1% 0.0% 5.2x 5.0x NA NA NA NA 5.2x 5.5x 4.0x 6.5x 9.7x 4.6x 9.6x 9.6x California Resources PP 11.25 4.3 117.6% 0.0% NA NA NA NA NA NA NA NA NA 11.3x 17.3x 57.5x 17.2x 27.6x 65.1x Simple Avg 39.9% 0.9% 250.2x 196.3x 93.1x 11.0x 14.9x 9.6x Wgtd Avg 33.3% 1.5% 41.3x 9.4x 69.7x 11.3x 15.6x 9.8x NA NA NA 10.5x 15.0x 16.5x 12.5x 17.5x 17.5x Overall Simple Avg 32.5% 1.7% 157.5x 90.3x 73.0x 10.4x 13.8x 9.0x 219.0x 105.5x 143.6x 10.9x 13.8x 12.5x 13.1x 18.5x 14.7x Source: Company reports, Bloomberg Finance LP, Wood Mackenzie, Wolfe Research estimates WolfeResearch.com Page 13 of 15
DISCLOSURE SECTION Analyst Certification: The analyst of Wolfe Research, LLC primarily responsible for this research report whose name appears first on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the research analysts personal views about the subject securities or issuers and (ii) no part of the research analysts compensation was, is or will be directly or indirectly related to the specific recommendations or views contained in this report. Other Disclosures: Wolfe Research, LLC Fundamental Stock Ratings Key: Outperform (OP): Peer Perform (PP): Underperform (UP): The security is projected to outperform analyst's industry coverage universe over the next 12 months. The security is projected to perform approximately in line with analyst's industry coverage universe over the next 12 months. The security is projected to underperform analyst's industry coverage universe over the next 12 months. Wolfe Research, LLC uses a relative rating system using terms such as Outperform, Peer Perform and Underperform (see definitions above). Please carefully read the definitions of all ratings used in Wolfe Research, LLC research. In addition, since Wolfe Research, LLC research contains more complete information concerning the analyst s views, please carefully read Wolfe Research, LLC research in its entirety and not infer the contents from the ratings alone. In all cases, ratings (or research) should not be used or relied upon as investment advice and any investment decisions should be based upon individual circumstances and other considerations. Wolfe Research, LLC Sector Weighting System: Market Overweight (MO): Market Weight (MW): Market Underweight (MU): Expect the industry to outperform the primary market index for the region (S&P 500 in the U.S.) by at least 10% over the next 12 months. Expect the industry to perform approximately in line with the primary market index for the region (S&P 500 in the U.S.) over the next 12 months. Expect the industry to underperform the primary market index for the region (S&P 500 in the U.S.) by at least 10% over the next 12 months. Wolfe Research, LLC Distribution of Fundamental Stock Ratings (As of September 30, 2016): Outperform: 39% 1% Investment Banking Clients Peer Perform: 49% 0% Investment Banking Clients Underperform: 12% 0% Investment Banking Clients Wolfe Research, LLC does not assign ratings of Buy, Hold or Sell to the stocks it covers. Outperform, Peer Perform and Underperform are not the respective equivalents of Buy, Hold and Sell but represent relative weightings as defined above. To satisfy regulatory requirements, Outperform has been designated to correspond with Buy, Peer Perform has been designated to correspond with Hold and Underperform has been designated to correspond with Sell. Wolfe Research Securities and Wolfe Research, LLC have adopted the use of Wolfe Research as brand names. Wolfe Research Securities, a member of FINRA (www.finra.org) is the broker-dealer affiliate of Wolfe Research, LLC and is responsible for the contents of this material. Any analysts publishing these reports are dually employed by Wolfe Research, LLC and Wolfe Research Securities. The content of this report is to be used solely for informational purposes and should not be regarded as an offer, or a solicitation of an offer, to buy or sell a security, financial instrument or service discussed herein. Opinions in this communication constitute the current judgment of the author as of the date and time of this report and are subject to change without notice. Information herein is believed to be reliable but Wolfe Research and its affiliates, including but not limited to Wolfe Research Securities, makes no representation that it is complete or accurate. The information provided in this communication is not designed to replace a recipient's own decision-making processes for assessing a proposed transaction or investment involving a financial instrument discussed herein. Recipients are encouraged to seek financial advice from their financial advisor regarding the appropriateness of investing in a security or financial instrument referred to in this report and should understand that statements regarding the future performance of the financial instruments or the securities referenced herein may not be realized. Past performance is not indicative of future results. This report is not intended for distribution to, or use by, any person or entity in any location where such distribution or use would be contrary to applicable law, or which would subject Wolfe Research, LLC or any affiliate to any registration requirement within such location. For additional important disclosures, please see www.wolferesearch.com/disclosures. WolfeResearch.com Page 14 of 15
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