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A Lean, Low-Cost Oil Producer

RSP Permian is our top pick in the upstream E&P segment, and we expect it to see substantial growth next year.


Dave Meats: RSP Permian continues to trade at a steep discount to our fair value estimate, and is our top pick in the upstream E&P segment. The firm is one of the lowest-cost oil producers in our coverage. The organization is very lean, with operating expenses per barrel at the bottom of the peer group range. It has also shaved off more than 40% from its capital cost per well since the end of 2014, despite adopting more expensive enhanced completions during this period.

The firm's Midland Basin acreage is ideally located in the core of the play, supporting robust initial production rates and moderate declines. Early indications are that its recently purchased Delaware Basin property offers very strong drilling economics as well. The first in-house well on that acreage targeted the lower Wolfcamp A interval, and delivered a 30-day initial production rate of 273 barrels a day per thousand lateral feet. If widely repeatable, this result could indicate that management's initial recovery estimate of 900-1,200 thousand barrels per well is too conservative.

Dave Meats does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.