RE: RE: RE: Q out after bell
Pace Oil & Gas Ltd.
William S. Lee, P.Eng.
Company Comment
Wednesday, August 15, 2012, Pre-Market
(PCE-T C$2.86)
Jeanie Wu, P.Eng - 403-213-7328 (Scotia Capital Inc. - Canada) jeanie.wu@scotiabank.com
Rating: 2-Sector Perform Target
Risk Ranking: High
Valuation: 0.6x our 2P NAV blow down.
Key Risks to Target: Oil and natural gas prices; Drilling program success.
Matziwin Oil Discovery Shows Promise
Event
1-Yr: C$6.00 2-Yr: C$8.00
¦ Pace reported Q2/12 financial and operating results. CFPS of
.35 was ahead of our estimate and consensus by 16% due to lower than expected royalties. Production of 13,765 boe/d (46% oil/NGLs) was in line.
Implications
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Matziwin Pekisko discovery. PCE brought on 2 net Hz discovery wells with initial rates of 240 bbl/d (~19 days) and 150 bbl/d (~10 days). While the results are still preliminary this could be a new growth area for PCE, which holds 65,000 net acres at Matziwin with 60+ locations. We estimate Matziwin could add ~$1.35/share (unrisked).
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Guidance revised. Pace revised its 2012 capital budget to $70M - 80M from $85M and production guidance to 13,500 - 14,000 boe/d (50% oil/NGLs) from 13,800 - 14,600 boe/d. As a result, our 2012E production and CF estimates are down 3% and 6%, respectively.
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Valuation. PCE trades at 4.5x EV/DACF and 0.3x P/NAVPS versus its peers at 5.4x EV/DACF and 0.6x P/NAVPS. Valuations are attractive, but we believe the market is looking for sustained CF and production growth before ascribing a higher multiple.
Recommendation
¦ We maintain our 2-SP rating and one-year target price of $6/share.
Summary of Scotia's take on the results. Anticipating cash flow 1.33 this year, less than my far to optimistic guess. Still a buy, IMHO. WKH