CIBC World Markets Extract from yesterday's report focusing on international plays. GLTA
We remain generally positive on the financial health of most international E&Ps and note that Canadian-listed international E&Ps are generally oil-weighted and, due to the Brent-based pricing, show strong netbacks and cash flow-generating capacity. Standout Sector Outperformer-rated stocks include:
GTE – 81% of core NAV and 3.2x 2013E strip EV/DACF;
CEN –105% of core NAV and 3.9x 2013E strip EV/DACF;
PXT – 134% of core NAV and 2.9x 2013E strip EV/DACF.
We believe that investors that are becoming more comfortable investing in equities should consider GTE, CEN, and PXT as good, inexpensive investments.
Gran Tierra Energy (SO; $8.25 Price Target): GTE is well-funded with no debt and ~$185 million forecast net working capital at YE12. The company is expected to be modestly free cash flow positive in 2013 on a $360 million capital program and is forecast to grow production at 14% Y/Y in 2013 to 20,187 Boe/d (97% oil). GTE has two significant potential catalysts in Peru and Brazil that could add significant value in 2013. The key for share price appreciation in 2013 is successful exploration in Peru and Brazil, as well as continued delineation of the Moqueta oil field in Colombia. GTE is trading below our updated (YE12) core NAV of $6.53/sh and 3.2x 2013E strip EV/DACF.
Coastal Energy Company (SO; $24.50 Price Target): CEN discovered a 105 MMBbls recoverable field in 2011 and is on the hunt for more oil with a second rig recently added for 2013. We foresee production growing 49% Y/Y in 2013 to 32.7 MBoe/d (93% oil) based on development of existing discoveries. We expect Coastal to generate $234 million in free cash flow in 2013 on a $310 million budget. The company will also be drilling some very prospective lands in 2013 and could recognize further value through new discoveries or a corporate sale. Despite having a very solid company, CEN trades at 105% of core 2P NAV and 3.9x 2013E strip EV/DACF.
Parex Resources (SO; $8.00 Price Target): After growing production 3,600% Y/Y to a 2011 exit rate of 14 MBbls/d, the company struggled with offsetting declines in 2012, revising exit guidance down on two occasions and finally exiting the year at a guided rate of 14 MBbls/d. Parex appears to be back on track for 21% growth in 2013 to 13.8 MBoe/d (100% oil), as it has significantly diversified its asset base and has a healthy balance of development and exploration wells to drill in 2013. The company has an undrawn $75 million line and is expected to spend 104% of cash flow in 2013. PXT trades at 134% of core 2P NAV and 2.9x 2013 strip EV/DACF. We expect a significant 2P reserve increase at YE12, which could increase the company’s core NAV. The key for share price appreciation in 2013 is a positive upward 2012 reserve revision and continued development and exploration success.