Jagged Peak Could Be The Clean Play For Energy Investors

Wells Fargo started coverage of Jagged Peak Energy Inc JAG with an Outperform rating, saying the company represents the cleanest way to gain exposure to the southern portion of the Delaware Basin.

Analyst Gordon Douthat believes Southern Delaware offers some of the best rate of change potential in the E&P space.

Why Southern Delaware Basin?

Jagged Peak is a Delaware Basin pure-play operator with an extensive inventory of 1,250+ sucked-pay locations across 67,264 net acres of oil-rich shale across Ward, Reeves, Pecos and Winkler Counties.

Jagged Peak offers a deep inventory of oil-focused Delaware Basin drilling locations with upside potential from downspacing and the exploitation of intervals not currently targeted by the company that could prove prospective,” Douthat wrote in a note.

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Further, the Delaware Basin offers some of the best rate of change upside potential, with best-in-class IRR comparable to those of the Midland Basin, and more prospective intervals with a larger pay thickness.

Analyst's Take

Douthat, who has a valuation range of $22–$24, sees 2017 EPS at $0.34 and expects production to grow at 140 percent 2016-18 CAGR, supported by an inventory exceeding 20 years.

Shares of Jagged Peak Energy were up 3.7 percent at $14 in Tuesday's pre-market session.