TriOil Resources Ltd TRIAF

Canaccord tgt 4.85

[RockLobster1]

TriOil Resources (TOL : TSX-V : C$1.70) - Speculative Buy - Target:C$4.85
Lochend success, though Q2 results and guidance reduction trim estimates 
TriOil reported its fourth (of 2011) Lochend Cardium well result (30% w.i.), which has an IP28 rate of 277 Bbls/d of oil (323 BOE/d), or 85% higher than our IP30 type-curve rate of 150 Bbls/d. The success continues to demonstrate the positive impact of slickwater completions on the formation in the area. A fifth well (100% w.i.) is completed and being equipped and a sixth (50% w.i.) has recently been drilled and will be completed in September. Quarterly results of 1,212 BOE/d and
.07 of diluted CFPS were below our forecast 1,320 BOE/d and
.09 with the primary cash flow differences relating to a gassier than forecast production mix and higher costs. Current corporate production is approximately 1,200 BOE/d (net of sales and shut-ins) and the company is reducing its production guidance and prudently, we believe, its capex plans. The newly proposed ~$47.5 million 2011 budget (down from the original $60 million) is expected to yield an exit rate of approximately ~2,000 BOE/d (down 
from the prior~2,400 BOE/d). We have made a similar cut to our 2012 capex forecast, which materially improves the balance sheet. The Lochend result is a clear positive, though we have yet to adjust our forecast type-curves, and as a result the reduced spending and production trims our cash flow estimate and target price. Given the smaller cash flow base and our belief that equity markets will be relatively closed to the company within our forecast horizon, we are also reducing our target multiple to 5.0x (from 6.0x) Despite the trimmed forecasts, TriOil is still in possession of what appears to be a very economically viable and improving light oil asset in the Lochend area. Industry activity here has expanded rapidly and completion techniques have evolved at a similarly fast pace. The company's latest result bodes very well for future success and the play's value, we believe, underpins our target price. We are reiterating our Speculative BUY rating on TriOil, with a revised $4.85 
target price (from $5.75). Our target is based on a 5.0x 2012 EV/DACF multiple supplemented by risked Cardium upside. TriOil currently trades at a low 3.3x 2012 EV/DACF multiple and $46,602 per BOE/d.