WestFire Energy Ltd T.WFE

GMP on WestFire Energy

[carlson8]

Mid-day Comment: WFE



07/07/11
WestFire Energy Ltd.
Peter Doig
WestFire Energy Ltd. (WFE-T); BUY, $10.75
Active second half of the year expected
Second half budget set at $85 million
Management announced its plans to spend $85 million in the third and fourth quarters, which should bring the full year capex program to $133 million. This is right in line with our forecast. The second half drilling program is expected to result in 59 gross (48.2 net) wells with the majority of these, 53 gross (42.5 net), being horizontal Viking locations. WFE plans to have three rigs operating in the second half to complete this program with activity at Redwater, Provost and central Saskatchewan.
Changes to our estimates – Exit rate guidance higher than expected
We have updated our forecasts to incorporate the increased exit rate guidance of 10,500 boe/d (70% oil and liquids); which is a full 1,000 boe/d higher than our previous forecast of 9,500 boe/d. We continue to forecast a total E&D capex program of $130 million, which is expected to generate average volumes of 6,275 boe/d in 2011 with a projected exit rate of 10,500 boe/d (70% oil and liquids). For 2011 we now forecast CFPS (f.d.d) of $1.09 (up from $1.00) and a year-end net debt of $95.2 million (previously $100.5 million). In 2012, we now forecast average volumes of 11,250 boe/d on a $190 million capex program. This is expected to generate CFPS (f.d.d) of $1.56 (previously $1.47/share) and a year-end debt figure of $153.7 million (compared to $151.9 million in our old model).
Recommendation
With current volumes (post the Orion deal) now running ahead of expectations at 9,000 boe/d and management now guiding to an exit rate of 10,500 boe/d, we see a more aggressive growth profile over the next year as WFE ramps up activity on its large Viking drilling inventory. We continue to watch for improvements in the understanding of the Viking formation and the application of new drilling and completion techniques like the “hot frac” stimulations, to lead to improvements in both costs and expected EUR’s. With the increased production profile in the second half and into 2012 we have raised our target to $10.75, up from $10.25, and maintain our BUY recommendation.