Expectations have been lowered?? Fiscal Q3/09 Results Below
ExpectationsBUK-TVX C$0.32
Recommendation Speculative BUYTarget Price C$1.30Projected Return 306.3%
Reason for Comment: Company Update
Event: Bridge released its fiscal Q3/09 (Calendar Q4/08) results on Friday.
Analysis & Forecasts: Bridge was finally able to bring Durango production on-stream in the quarter with the well producing an average 12.7 mmcf/d of gas and 347 bbls/d of condenstate (2.468 BOE/d) over a 35-day period. The realized gas price was US$10.54/mcf. These results were inline with our expectations. The surprise in the quarter was the amount of gas backedout of the LAPS pipeline system as a result of Durango's high pressure. This was equivalent to 7.5 mmcf/d over the 35-day period. As described in our last report, this gas is allocated to the other operators on the pipeline and recovered by Bridge at a later date. We are concerned by the materiality of the amount of backed-out gas. Given that Durango is expected to produce at high rates for the next several years and if the rate of backed-out gas remains consistent, the impact to Bridge could be US$22 million of deferred cash flow ($0.11/share fd) in calendar 2009 using our US$8.06/mmBTU gas price forecast. This would negatively impact our financial outlook for the company.
Valuation & Recommendation: We are leaving our operational and financial forecasts intact until we are able to communicate with management and confirm how much gas back-out is expected over the next year. If our suspicions are correct, we will be reducing our estimates. Our target price is based on an equal weighting of our NAV estimate and our 2009E DACF valuation.