RE:TD upgrades..cashtango00 wrote: pay attention to the last 2 paragraphs. They no longer feel it is likely an equity issue is required and feel that any reworking of their agreement with the government will have minimal financial implications... upgraded the stock.
Source:
TD Canada Trust:
Details & Outlook Although the overall reserves were down, EOR reserve volumes doubled in the Patos-Marinza field (4.6mmBOE PDP, 14.7mmBOE 1P up 71%, 21.1mmBOE 2P up 86%, 27.3mmBOE 3P up 104%). Management believes that in a low oil price environment, a high-graded portfolio of EOR locations (which continues to grow; the company has identified over 240 additional contingent patterns) will allow for production maintenance with better economics than new wells. At year-end 2015, the company had implemented 53 polymer and waterflood locations, and had another 100 future locations booked. 1P and 2P volumes remain unchanged, but the company experienced an after-tax NPV10 down 12% and 21%, respectively. Management highlighted on the call that the lower F&D costs being realized on EOR efforts relative to new wells were not being materially accounted for in the reserve auditor valuation. Management continues to combine cost-cutting initiatives, an effective hedging strategy, capital discipline, and development program flexibility to weather the current difficult oil price environment. As a result, non-core drilling has been deferred until further notice, with the primary focus being on core drilling and EOR conversions (16 possible wells, 16 conversions planned for 2016). On the conference call, management reiterated that it believes that a conclusion to the 2011 cost recovery review can be expected in Q2/16, thanks to it now being a binding process. It should set a good precedent for the 2012 cost recovery review. Renegotiations for existing contracts with the government were also mentioned on the call as being expected to have a minimal impact on the long-run economic viability of the company’s projects. As a result of these disclosures, we have eliminated our previous expectation of a dilutive equity issuance this year as we believe that the flexible 2016 work program and reduced likelihood of significant cash outflows related to the disputes with the government have allowed the company a direct route to maintaining cash levels longer than we had previously anticipated.
Although the reserve evaluator’s 2P NPV10 has been reduced by 21% to US$1.4bln, at C$7.49/share, this remains significantly above the current share price.
In fact, the company continues to trade below the evaluator’s 1P NPV10 per share of C$3.42.
RLI for 1P is 18 years and 2P is 29 years, once again reiterating the impressive scale of the company’s resource base at Patos-Marinza oil field.
Future 2P F&D costs of $2.0bln have been reduced by about 5% compared with the previous year’s estimate, owing to a decrease in the horizontal well count to 803 from 870.
We are also encouraged by the recent update (February 24) regarding the now-binding cost-recovery review, which is anticipated for Q2/16 completion. This could facilitate an amicable resolution of the tax dispute with the Albanian authorities.
TD Investment Conclusion We are attracted to Bankers’ long-life reserves that provide tremendous scope for future growth, as demonstrated by the 2P RLI of 29 years. This, together with a reduction in operating costs over the last couple of years, makes for a robust business and positions the company well to benefit from an oil price recovery. We expect that with an amicable resolution to the Albanian tax dispute and mutually acceptable changes to the terms of the Petroleum Agreement, the markets will refocus on Bankers’ excellent technical attributes. In the meantime, we are retaining our SPECULATIVE BUY rating, with a new target price of C$1.90 (was 1.75).