Arcan Resources Ltd ARNBF

Scotia Report on Arcan

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Here is what they have to say:

 

Arcan Resources Ltd. 

Rating: 1-Sector Outperform Target 1-Yr: C$8.00 ROR 2-Yr: C$10.00 

2011 Exit Rate Achieved; Operations Improving 

Event 

¦ Arcan announced an operational update. 

Implications 

¦ Good start. ARN's exit rate of 6,000 boe/d with current capacity at 
6,400 boe/d are both positive and milestone achievements, in our 
opinion. Given the strong start to the year and with the ability to drill 40 
wells in the highly economic Beaverhill Lake (BHL) light oil play, our 
2012 estimates of ~6,600 boe/d (capex @$225M) may prove light. 

¦ Better with more fracs. ARN's latest wells (20-30 fracs; up from 14) 
delivered 15% higher rates with 30-day IP at 400 boe/d (in line). 
Operations continue to improve on all fronts as waterflood is in full 
swing at Deer Mountain and Ethel and steps have been taken to ensure 
downtime experienced in 2011 is minimized with infrastructure and 
facility upgrades. 

¦ Valuation. We continue to be fans of the BHL play and with improving 
operations we remain bullish on ARN as we see a solid year unfolding. 
ARN trades at 6.3x 2012 EV/DACF. We believe with continued volume growth we see potential for a valuation bump. 

Recommendation 

¦ We maintain our one-year target price of $8.00 and our 1-SO rating.