RE: RE: RE: Legacy Comparison To Petrobakken I think for cashflow projections you have to use the full year average production numbers. If you use the exit rates you are just comparing one day to one day as over the course of the year production will swing dramatically.
Legacy Oil + Gas Inc. | Brian Kristjansen, 1.403.691.7807 LEG : TSX : C$10.00 | C$1,432.6M | Buy , Target C$16.50 ↓ • Q4/11 beat overshadowed by disappointing reserve release; reiterating BUY
rating; decreasing target to C$16.50 (from C$17.00)
Event
Legacy released Q4/11 results and its year-end reserve report. Quarterly production of 14,880 BOE/d (84.3% oil) was ahead of our 14,295 BOE/d (81.5% oil) estimate, although continued high operating costs mitigated the production beat, delivering CFPS, f.d. of
.42, which we consider in-line with our
.41 estimate and consensus of
.40.
The company also reported a 9% increase in proved reserves to 52.4 MMBOE and a 13% increase in 2P reserves to 88.0 MMBOE. All-in FD&A (incl. FDC) jumped sharply to $71.25 per BOE proved and $47.46 per BOE on a 2P basis, netting cash flow recycle ratios of 0.6x and 0.9x (operating recycle ratios of 0.7 and 1.0x), which are amongst the lowest reported to date in our coverage universe.
Impact
Negative/Neutral. The recycle ratios, although anomalous to Legacy’s historical average, are amongst the worst reported in our coverage universe. We expect these to improve as a longer production history is established in the Spearfish, as new Turner Valley completions are recognized, and the company dedicates 87% of its 2012 capital budget to development of proven plays.
The headline reserve metrics are negative, but the impact of an oilier production forecast mitigates higher cost estimates to leave cash flow essentially unchanged. Last, we have removed newly booked Bakken and Spearfish wells from our risked upside estimates, slightly reducing our target price.
Recommendation
We are reiterating our BUY recommendation on Legacy with a revised C$16.50 target price (from C$17.00). Our target remains based on a 7.5x 2013E EV/DACF multiple supplemented by $3.44 in risked Bakken and Spearfish upside potential (from $3.91). Legacy currently trades at a 6.0x EV/DACF multiple and $103,346 per BOE/d based on our 2013 estimates.
That is insane how terrible the Recycle Rate and F and D costs are. Just shows how badly the breakup screwed us over. Going forward that number can't help but decrease, it basically can't get any worse.