Union upgrades Target price to $7.50Warren rates this as a Strong Buy
Developments
Winstar’s stock price reflects the potential of its first Silurian location, the test results of which are expected to be released within the next few weeks
.CommentsThe CS Sil 1 location, having been logged and cased, is expected to commence testing next week, with results due 2-3 weeks later.
This is Winstar’s first penetration of the Silurian; the Company has identified ten additional similar targets.
Drilling of similar structures by the competition in the basin has averaged an 80% success rate, 6,000 bd on test, and reserves of over 4 million barrels per discovery. When placed on production, one of these wells could more than double the Company’s current production.
Relative to the Company’s Q3/10 production of 1,889 boed, and 2009 year-end reserves of 12.8 million barrels, a successful Silurian drilling program could have a dramatic impact on the valuation of Winstar.
At current prices, the stock is trading under the pre-tax asset value calculation of $11.67, based on 2009 year-end reserves. An after tax calculation provides an asset value of over $7.00 per share.
Valuation and RecommendationSuccess at the CS Sil 1 location would be a key step in adding significant shareholder value, and forms the basis for our Strong Buy recommendation.
The current price of the stock is supported by its asset value, with no speculative premium. Our 2011 cash flow estimate of .89 is prior to any volumes from CS Sil 1.
Based on the high impact potential of the first Silurian well, we are
raising our Target to $7.50 from $6.00.Details here:
https://www.union-securities.com/CMResearchFiles/1_184_Winstar%20Resources%2001%2012%202011.pdf