PI Financial take on the asset saleIMPACT: Far better positioned than most! This deal looks to have
knocked $1.50/boe (or 20%) from corporate OpEx while cutting debt-to annualized
Q4E CF to 1.9x (from 2.7x). Equal’s improved balance sheet is
further compounded by years of self-imposed austerity. While most peers
have spent multiples of cash fl ow in recent years, Equal has guarded its
equity by keeping expenditures within cash fl ow and selling assets to pay
down debt –which under a previous management reached 6x CF. Although
Equal has assembled (and validated) a large Cardium and Viking inventory
they have yet to exploit it. The result is a decidedly low-decline production
base with over five years of high-quality inventory. Detailed within, this
inventory is generally not reflected in current reserves yet the company
trades at ~50% of its NAV. As their peers are raising equity to fight the
steep declines associated with new production, Equal’s lowest cost opportunity
(TCCD in Oklahoma) is capable of replacing total corporate production
(and reserves) by reinvesting one-third of cash flow.
?? VALUATION /RECOMMENDATION: Just as a stable production base
provides downside protection, a lightly booked and deeply discounted
NAV packs a lot of upside potential. While not immune to market volatility,
Equal’s years of living within cash flow arguably leaves the Company
better positioned than most. And yet, if markets suddenly improve significantly,
the upside potential afforded by Equal’s steep (~50%) discount to
its NAV is further compounded by the fact that Equal has demonstrated
conservative booking practices when it comes to the recognition of its
identified opportunity base. We reiterate our BUY rating and 12-month
target price of $12.00 (SPECULATIVE risk rating). -PI Financial 27Oct.
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Regards,
Nawar