IBERIA Upgrades Jones Energy To Outperform, Sees A Light At The End Of The Tunnel

With Jones Energy Inc JONE adding three full time drilling rigs, IBERIA Capital’s Eli Kantor believes that the company would be able to monetize its existing Cleveland sand opportunity within 12 years, versus the earlier expectation of 27 years.

Kantor upgraded the rating on the company from Sector Perform to Outperform, while raising the price target from $4 to $6.

Additional Rig Count

The analyst explained that the rig acceleration leads to a doubling of the undeveloped resource valuation from $220 million to $440 million, while compressing the 2017 EBITDA multiple.

However, Kantor also stated that a 12-year drilling inventory “compares unfavorably to our coverage universe average of 25+.”

With potential acquisition identified at 50,000 net acres, the analyst believes that Jones Energy could “potentially double their location count at a cost of $25mm. If successful, the addition would boost our NAV by $100mm or $2/share.”

Cost Reduction & Liquidity

Kantor pointed out that the long term well cost estimate of $2.3 million was higher than the guidance of 2.03 million.

However, if the company is able to achieve well cost reductions, it could prove to be an incremental driver of NAV.

Kantor also expects the company to outspend cash flow by $110 million over the coming seven quarters, as compared to the liquidity balance of $360 million at the end of 1Q.

In addition to this, Jones Energy has guided to $110 million reduction in its borrowing base, which is expected to be announced in the near future.