GREY:NOVUF - Post by User
Post by
donofdubaion Dec 14, 2010 10:15am
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Post# 17842911
Canaccord initiates coverage
Canaccord initiates coverageNovus Energy (NVS : TSX-V :
.88) - Buy - Target: C$1.35
Steve Toth
Comment: Attractive valuation with large light-oil resource capture in SE Saskatchewan Viking play; initiating coverage with a BUY and C$1.35 target
We are initiating coverage of Novus Energy with a BUY rating and a C$1.35 target price, based on a 1.0x multiple to our contingent net asset value (CNAV) estimate and reflecting a 2011E EV/DACF multiple of 8.4 times. Light-oil focus with significant growth opportunity; potential for corporate reserves to nearly triple at year-end 2010. Novus' operations focus primarily on Viking light-oil opportunities in southern Saskatchewan. The company controls ~105 net sections in the greater Dodsland area, with 560 identified horizontal drilling locations (only 14 booked in its 2009 reserve report). Given the company's drilling to date and our expectation for offsetting well bookings, we believe Novus could nearly triple its corporate reserves year over year (to ~7.5 mmboes). Novus has amassed a large, attractive land base in the greater Dodsland area with over 550 mmbbls of DPIIP (discovered petroleum initially in place). Average best estimate recovery factor expectations (by Sproule) under
primary recovery are in the 4.3% range. Ultimately, secondary/tertiary recovery schemes will be employed by producers to unlock the vast resources of the Viking, however we estimate Novus has more than 10 years of running room with its horizontal inventory. We believe most of the prospective areas in the Dodsland area have been captured over the past several years. Consolidation will inevitably be the next stage of evolution for the Viking play, in our view, and producers such as Novus that have a material land position in the play are prime takeout candidates for larger entities seeking increased land and resource capture. Novus currently trades at a 0.7x multiple to our CNAV estimate, 5.8x EV/DACF multiple and $74,422 per BOEPD based on our 2011 estimates. This compares with our peer group averages of 1.4x CNAV multiple, 6.4x EV/DACF and $69,795 per BOEPD.