UPDATE: Wells Fargo Double Upgrades Extraction Oil & Gas (XOG) to Overweight
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(Updated - February 16, 2021 5:49 AM EST)
Wells Fargo analyst Nitin Kumar upgraded Extraction Oil & Gas (NASDAQ: XOG) from Underweight to Overweight with a price target of $38.00.
The analyst upgrades on two key points: "1) 2021+ capital budget details: While our model is pegged to a multi-year business plan provided in mid-October calling for ~$174mm of 2021e capex to fund the TILing of 35 net wells, this was predicated on an average WTI price assumption of $42.75/bbl, well below the current futures strip at ~$55/bbl. On 2/9, XOG further updated the market with expectations of $150-$200mm of 2021 capital spend resulting in production of 66-74 mboe/d (36-38% oil). With 4Q20 results set to be released on 3/18, we believe greater detail around the 2021+ budget should act as further reinforcement of a change in strategy toward capital discipline. 2) Return of capital announcements: With XOG set to generate an avg of ~$170mm/yr of FCF over the next 5 yrs (assuming guidance of modest investment holds), we believe the company finds itself in a strong position to begin returning cash to shareholders. Our conversations with management suggest this will likely take the form of a dividend, which XOG recently affirmed the board was evaluating when delivering 2021 guidance. At the futures strip, we estimate XOG will generate upwards of ~$272mm of 2021 FCF (~$66mm after working capital changes & professional fees), which may provide enough margin of safety for a dividend to be established before YE21. Until then, XOG expects excess CF will go toward debt reduction, and has guided plans to exit 2021 with $100-$175mm of net debt."
Shares of Extraction Oil & Gas closed at $31.80 yesterday.
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