$2.55 price Target from Dundee Waiting on Waterfloods
Source: See Note 1
Q1/13 cash flow lower on non-recurring items
Pinecrest Energy reported Q1/13 production of 4,315 BOE/d and CFPS, f.d. of
$0.09 relative to our forecast 4,350 BOE/d and CFPS, f.d. of $0.10 (latest
consensus had 4,452 BOE/d and $0.10).
We had mentioned in our Q1/13 preview on April 18, 2013 the likelihood of
higher H1/13 operating and transportation costs while the company trucked
emulsion and water for its new injection schemes but failed to gauge the
magnitude of the increase accurately. Combined operating and transportation
costs of $18.88 per BOE were quite a bit higher than the $15.65 per BOE we
had forecast.
The difference is attributable to $1.31 per BOE of incremental propane and
chemicals and $1.68 per BOE of work over projects, which are not expected to
be recurring (combined operating and transportation costs for the remainder of
the year are forecast at $14.00 per BOE). Total capex of $53.5 million
compared fairly well with our $50.0 million forecast.
Waterflood wait continues…
The company’s Loon Project #1 began injecting in late March and results are
expected in forthcoming quarters. We believe the company did not have
sufficient data points in hand to clearly show a definitive response at this time.
The two subsequent floods are ready to go but field conditions won't see them
injecting until Q3/13. The final three projects are now scheduled to commence
in Q4/13. While this is a quarter delayed, it does not impact our forecasts which
include a much longer time frame to achieve peak post-injection production.
Pinecrest drilled 12 (11.3 net) wells in Q1/13 and have brought all of them on
production. Well costs are now below $3.8 million per well, leaving us
comfortable with our long-term (2015-plus) forecast of $3.6 million per well.
Current production levels are being affected by break-up, with volumes down
10-12%. This is right in line with our model, which incorporates a similar impact
through Q2/13.
Mildly negative impact given lack of sought after catalyst
The slight cash flow miss and lack of waterflood catalyst may weigh on the
stock in the near-term, though we believe any weakness presents an
opportunity as the stock trades below its $0.94 PDP NAV and an extremely low
2.2x 2013E and 1.6x 2014E P/CF ratio. The company retains one of the
cleanest balance sheets in our coverage universe, at 1.4x and 1.1x net debt to
trailing cash flow ratios in 2013E and 2014E and recently had its bank lines
syndicated and increased to $165 million.
Recommendation and Valuation
We are reiterating our BUY recommendation with a revised $2.55 target price,
which is based on a 4.5x 2014E EV/DACF multiple and $0.53 of risked Slave
Point upside. PRY is currently trading at 3.5x 2013E EV/DACF and $72,932 per
2013E BOEPD relative to our juniors peer group average of 5.6x 2013E