Post by
ilovetoshortem1 on Jan 23, 2015 11:42am
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Company Profile Trilogy Energy Corp. is a gas-weighted Canadian Intermediate E&P company, focused in Kaybob and Grande Prairie, Alberta. Over the past several years, Trilogy has allocated the majority of its capital to Kaybob, which currently accounts for ~90% of total production. Trilogy's Kaybob asset features multiple Montney light oil pool, Montney gas, and liquids-rich Duvernay gas potential. Business Mix (Based on revenues unless otherwise noted) Production: 60% Natural Gas, 40% Oil and NGLs (100% Canadian) Comparable Companies (TSX unless otherwise noted) RMP, KEL, BIR, AAV Recent Update Text as of 16JAN15 . TET announced Q4 volumes and reduced 2015 guidance. . Making the right move. TET reduced its 2015 capex guidance from $250M to $100M, resulting in production of 30 mboe/d (previously 35 mboe/d). This does not come as a surprise given the weak commodity environment. The lower spending is in line with our estimate of cash flow using US$50/bbl WTI and US$3/mcf HH, and results in debt-adjusted production per share growth of -16%. . Ample liquidity. While 15E D/CF is high at 12.1x (using US$50 and US$3), TET has ample liquidity with about 30% undrawn on its bank lines (equating to ~$215M incl. working cap). Thus, while production and growth take a hit, TET is preserving its balance sheet. With the current commodity headwinds, we expect the majority of its peers to follow suit. The capex cut was deep but a prudent move, in our opinion. . What's priced in for Duvernay? Using the US$50 and US$3 deck, we estimate that the Duvernay is valued between $2,500 and $5,000/acre and compares with recent JVs at $10,000+/acre. If TET is successful in attracting outside capital similar to other deals in the Duvernay, the stock should respond nicely. While we acknowledge the potential, we believe given the current commodity price environment the negotiating leverage lies with the party looking to allocate capital. . Our rating remains SP; our target moves to $10/sh with commodities. William S. Lee, P.Eng. (Scotia Capital Inc. - Canada)