Seven Generations Energy Ltd. class A common shares T.VII

Energy

"Seven Generations Energy Ltd is an independent energy company focused on the acquisition, development, and optimization of high-quality, tight rock, natural gas resource plays. The company employs long-reach and horizontal drilling to produce resources of natural gas, condensate, and natural gas liquids. In addition to drilling operations, Seven Generations owns several gathering lines and processing facilities. The company depends on a skilled technical and business team to identify, capture,

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Seven Generations Energy Ltd. class A common shares

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Post by retiredcfon Jan 11, 2019 8:52am

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Post# 29217262

RBC

Their upside scenario target is $20.00. GLTA

January 11, 2019

Seven Generations Energy Ltd.2019 Investor Day Highlights

Our view: 7G unveiled official 2019 guidance alongside a refresher of the company's core assets at its annual Calgary Investor Day, pointing to a CF- neutral 2019 outlook. This approach makes sense in our minds given the current macro, while opening the door to incremental free cash flow as commodity prices improve. Reiterate OP, $15.

Key points:

Focus shifts to sustainability in 2019. 7G's 2019 budget of $1.25 billion is expected to drive production volumes of 200,000-205,000 boe/d, and is back-half weighted (Ex 2). The outlook is essentially cash neutral at our deck, with 7G pegging sustaining capital at roughly $1.1 billion with $150 million classified as discretionary and allocated to select infrastructure projects and Nest 1,3 and LM delineation. 2019 capital efficiencies map to roughly $15,000/boe/d, a 15-20% improvement over 2018.
Scratching the surface of 'non-core' targets. While capital remains focused in the Nest 2 region (615 U/M Montney locations), we highlight significant inventory in Nest 1 (480) and Nest 3 (190) regions. In addition, management flagged upside in the Lower Montney in addition to dry gas Cretaceous (190 locations). Management also flagged the previously-announced process on the Gold Creek plant to monetize underutilized volumes; expressions of interest have been received with news expected mid-to-late February.
Efficiencies to improve with 'cube' development. The company plans to delineate the Lower Montney in order to evaluate the potential of moving to a multi-layer cube style development (Ex 4). The first Lower Montney well exhibited a IP90 rate of 1,048 boe/d (72% condensate), suggesting encouraging commercial development potential. We expect the company to move to a cube style development over time in order to cut capital and will be monitoring productivity trends concurrently. Offset producers like Encana have shifted to this development style in order to improve corporate efficiencies.
Balance sheet strength/flexibility remains a key priority. Based on our updated estimates, VII holds $1.96 billion in net debt at year-end 2019, mapping to a D/CF ratio of 1.7x, which screens well relative to peers at 2.1x (Ex 3, 5). The company also has significant liquidity, with an undrawn $1.4 billion bank line at the end of 2019 (including WC items).
OP Recommendation. Our Outperform rating is driven by, in our opinion, (1) a premium liquids-rich asset base; (2) a discounted valuation and (3) exposure to diversified sales points. VII trades at a discount to peers with 2019E EV/DACF of 4.6x (peers 5.1x), with key risks in our minds revolving around the company's high (40%+) decline rate and condensate fundamentals, although we believe the market will remain tight/under supplied for the foreseeable future.