Canaccord Update and Target Torquay Oil (TOC.A : TSX-V : C
.32) - Speculative Buy - Target:C
.60
Initial 2012 capex guidance as expected: a low risk focus
Torquay provided initial 2012 capital spending guidance of $10MM, generally in line with our estimate. The company will maintain its focus on low risk Mississippian targets in 2012, and minor remediation work at Lake Alma. We are maintaining our SPECULATIVE BUY recommendation and 12-month target price of
.60/share, based on a 0.6x multiple to NAV. Insiders continue to buy the stock, suggesting that patient investors could potentially be rewarded with an appreciably higher stock price should management be successful in its efforts to retrench and profitably grow production; this potential turnaround could take several quarters to realize, in our opinion. Modestly outspending cash flow in 2012. Torquay announced initial 2012 capital spending guidance of $10MM, modestly below our cash flow estimate of $8MM (which assumes a US$92.50/bbl oil price). We forecast year-end net debt of $9MM versus current credit facilities of $11.5MM (Torquay also has access to a $2.5MM acquisition and
development demand facility). Drilling is expected to include about six wells, and is focused on low risk targets at Queensdale and Midale; its budget also includes seismic, land, and minor capital at Lake Alma. Current production at 605/boe/d. This is flat from the 605 boe/d announced in mid-February, and ahead of our Q1 estimate of 550 boe/d. More insider buying. Insiders continue to consistently buy the stock around
.30/share; the most recent buying was done on March 1 by the CEO and VP, Exploration (over 300,000 shares combined). Valuation Torquay currently trades at a 0.4x multiple to our CNAV estimate, a 3.0x EV/DACF multiple, and $43,500/BOEPD on 2013 estimates versus peer group averages of 0.5x NAV, 4.8x EV/DACF, and $52,600/BOEPD.