From RBC D.I. Parallel Energy Trust (TSX: PLT.UN)
Q2 Cash Flow Comes in Light
Sector Perform
Above Average Risk
Price: 5.95
Units O/S (MM): 53.2
Distribution: 0.96
Price Target: 6.50 ¯ 7.00
Implied All-In Return: 25%
Market Cap (MM): 317
Yield: 16.1%
Avg. Daily Volume (MM): 0.17
Priced at market close ET, August 14, 2012
Event
Parallel reported Q2 results.
Q2 Results
• Parallel reported Q2 cash flow of
.21, which was below our expectation of
.27 and consensus of
.25. PLT cited lower commodity prices as the
primary reason for the cash flow miss. More specifically, the company points to
poor performance of NGL pricing over the past quarter as a hindrance to cash
flow (Exhibit 2).
• Total Q2 production of 6,790 boe/d was in line with our expectation of 6,860
boe/d but was slightly more gas weighted than anticipated. Management
announced reduced guidance for the April 2012 to March 2013 production
period, from 7,300–7,700 boe/d to 7,000–7,400 boe/d. The reduction in
guidance is the result of the company's reducing its drilling program for the
year.
Operational Outlook
• Parallel announced that it will be releasing one of its two rigs and decreasing its
drilling program from 44 to 37 wells, resulting in the reduction in production
guidance noted above.
• The company also reported that restrictions in the pipeline that services the
Carson field will result in an outage of 3,000 boe/d for possibly six weeks,
creating a reduction of 350 boe/d in full-year production estimates.
Investment Opinion
• In our view, Q2 results were slightly weaker than expected given the cash flow
miss resulting from poor NGL pricing. In addition, the reduced production
guidance for the year and pipeline restrictions will raise concerns with
investors, in our view.
• We have modestly reduced our price target for PLT to $6.50 (from $7.00) on
the back of our revised 2013 cash flow estimates. We continue to rank the
shares Sector Perform, Above Average Risk. We continue to watch for
improvements in operating performance, partially reflected in the meeting of
production guidance, as a potential catalyst for the stock.