Updates for Crew, Pacific Rubiales and PetroBakken
Crew Energy Inc. (BUY, 12-month target C$14.00)
We have provided revised estimates and increased our target price following thirdquarter
results.
Crew is gaining momentum with its operational activities and is setting the stage for
growth. At Princess, high oil prices and strong drilling results are driving increased
activity levels. In northeast BC, Crew is expanding its areas of investigation in the
Montney fairway outside of its focus at Septimus.
Reported production of 13,065 boe/d beat our estimate of 12,200 boe/d. Reported cash
flow per share was
.24, higher than our estimate of
.22 and consensus of
.22.
Operating losses per share were (
.12) in line with our estimate of (
.12). Variances to
our estimates relate to higher reported production, lower reported pricing, lower
royalties, lower operating costs and higher reported depletion charges.
Drilling at Princess continues to deliver strong results and has allowed Crew to increase
production guidance for 2009. 2009 Guidance has been increased to 13,800-14,000
boe/d from 13,500-3,800 boe/d, higher than our existing estimate of 13,600 boe/d. In
addition, this increased guidance takes into account the disposition of approximately 600
boe/d from a non-core area, which is expected to close in the fourth quarter, and about
400 boe/d of shut in natural gas production.
Highlights
Crew sold approximately 600 boe/d of non-core production (1.2 mmboe of proved and
1.8 mmboe of P+P reserves) for approximately $25 million. Closing is expected in the
fourth quarter and proceeds will be deployed into activities in the field.
• Crew plans to spend $45-55 million in Q4/09 (our model assumed spending of $35
million) and plans to drill 25 wells, with a heavy bias to oil. This is a significant
increase in activity as Crew drilled 15 wells in the first nine months of the year.
• Three of six wells drilled in the third quarter at Princess have been brought on
production at initial rates averaging over 250 boe/d. This is higher than our
expectation of an average rate of approximately 200 boe/d per well.
• The 25 mmcf/d natural gas plant at Septimus was brought on-stream in early
October and is currently processing 12 mmcf/d of natural gas net to Crew. Crew
expects to complete the sale of the plant to Aux Sable Canada and receive proceeds
of $19 million (the costs incurred) in the fourth quarter.
Pacific Rubiales Energy (BUY, 12-month target C$16.75)
On November 9, 2009 Pacific Rubiales reported that the company has drilled another
successful appraisal well on the Quifa Exploration Block. The latest well, Quifa-12,
further delineates the successful discovery on Prospect E. In addition, well data also
implies a much larger oil accumulation than previously mapped. This data continues to
build support for the contention that the Rubiales field extends into the southwest
portion of the Quifa B.
With continued delineation drilling success on the southwest corner of the Quifa Block,
Pacific Rubiales’ management team continues to build a compelling case for the
extension of the Rubiales field on to Quifa. While we have not adjusted our risked
reserves estimates up as yet, the additional five delineation wells to be drilled before the
end of the year should provide key data to support this theory. Our current estimates and
target include limited risked upside from Quifa and future success would provide additive
to our valuation.
We are maintaining our target price of C$16.75 and our BUY rating. Our valuation is
based on an estimated NAV for the company’s producing assets plus risked exploration
upside for assets only at Quifa, Arauca and Peru. We note that this target also reflects a
6.3x multiple of 2010 debt-adjusted cash flow per share. This is in line when compared
to its peer group, which is currently valued at 5.5x to 6.5x 2010 DACFPS.
PetroBakken Energy (HOLD, 12-month target C$35.00)
PetroBakken announced a Q3/09 operational update. During the third quarter, the
company reported an average corporate production rate of 41,526 boe/d, or 32,448
boe/d from non-Alberta assets. Current production is now 44,500 boe/d including noncore
Alberta assets that are in the process of being sold. Non-Alberta assets are currently
producing 35,500 boe/d, placing the company in a good position to meet or exceed its
year-end exit production target of 37,000 boe/d. The company is progressing its Bakken
development using bilateral horizontals as originally planned, and results from the first
10 bilateral wells showed initial production rates between 250 and 300 boe/d.
Although
this is below the 375 boe/d first month production rate we had used in our assumptions,
the company did note that, because of the 30 fracs completed per well, it takes longer to
recover the load fluid, which results in increasing oil rates as the fluid is recovered. In
other words, it may be too early to draw any conclusions from this. The non-core Alberta
asset sale process is underway with results expected by the end of the year.
Although the initial production results from the bilateral horizontal wells were below our
expectations, additional data is needed in order to see if oil rates increase with load fluid
recovery. The company remains on track to meet its year-end 2009 production guidance
of 37,500 boe/d (net of the Alberta asset sale).
We currently have a HOLD recommendation on PetroBakken with a target price of
$35.00 per unit, which is based on our valuation assessment of the company’s current
2P reserves and future Bakken development opportunities, and also reflects a 2010E
EV/DACF multiple of 8.7 times.
The company is currently trading at an implied 2010E EV/DACF multiple of 8.0 times
and a P/NAV of 2.09 times, which reflects a premium to the intermediate E&P group
averages of 7.3 times and 1.27 times, respectively.