Post by
Al42 on Nov 06, 2020 7:41am
From RBC
November 5, 2020TORC Oil & Gas Ltd.Q3/20 – Predictable and ResilientOur view: TORC delivered another in-line quarter, generating strong freecash flow, which continues to improve the balance sheet and sustainabilityof the model. Execution remains strong with volumes holding steadydespite limited activity. We continue to recommend the stock for thosewith a long-term view but note limited near-term catalysts, as oil pricesremain stubbornly below US$40/bbl.Key points:Q3 right in line, focused on free cash generation. Q3/20 productionvolumes of 24,995 boe/d (88% liquids) compared to our 25,020 boe/destimate (Street: 24,937 boe/d). This drove CFPS of $0.16 which came inin line with RBC/Street estimates of $0.16/$0.16; key netback variancesare noted in Exhibit 2. Capital expenditures largely remain on hold; thecompany spent $6.2 million focused on optimization and maintenance(RBC/Street: $5.0 million/$5.1 million). Free cash generated during Q3amounted to roughly $30 million.Guidance unchanged, execution remains on point. Managementreiterated capital guidance of $80 million, with volumes expected toremain steady at 25,000 boe/d through year-end. The reduction in drillingactivity through the second half of 2020 is expected to improve thesustainability of the model; management estimates the base corporatedecline rate will remain in the range of 20% next year.Modeling maintenance programs through 2022. Our current estimatesreflect maintenance programs for the next two years, with a continuedfocus on improving financial flexibility and sustainability. We modela $125/$125 million capital program in 2021E/2022E, driving stablevolumes in the range of 25,000 boe/d. Notably, this would require limitedactivity, which likely results in a further improvement in the company'sunderlying base decline rate. We currently forecast $55/$85 million in freecash generation in 2021E/2022E with the dividend remaining suspended.Balance sheet in good shape. TORC repaid $32 million in bank debt duringQ3, exiting with a draw of $336 million on its $425 million facility. In ourview, this leaves plenty of room to execute current plans, while providingflexibility to execute tuck-ins across the portfolio. Based on our updatedestimates, we see the company generating free cash flow of $55/$85million in 2021E/2022E, driving improving leverage metrics of 1.6x/0.9x,which compares favourably to peers at 3.3x/2.6x.Recommendation and PT unchanged. Our Outperform recommendationand $2.25 per share price target are unchanged. TOG shares currentlytrade at a discounted 3.2x/2.4x 2021E/22E EV/DACF vs peers at 3.9x/3.1x.We continue to view this as a good entry point for investors with a long-term view, given high asset quality, strong execution, and a seasonedmanagement team