Compass Venture Inc T.CVI.A

RE: RE: RE: RE: RE: fRE: $37 million is Ed's parac

[GMJFAR]

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Company Comment
Thursday, January 3, 2013, After Close
For Reg AC Certification and important disclosures see Appendix A of this report. Analysts employed by non-U.S.
affiliates are not registered/qualified as research analysts with FINRA in the U.S.
Calvalley Petroleum Inc. (CVI.A-T C$1.68)
Inventory Sales Support a Strong Q4
Gavin Wylie - [phone]
(Scotia Capital Inc. - Canada)
[e-mail]
Setareh Keyvan, MBA - [phone]
(Scotia Capital Inc. - Canada)
[e-mail]
Div. (NTM) C$0.00
Div. (Curr.) C$0.00
Yield (Curr.) 0.0%
Rating: 2-Sector Perform Target 1-Yr: C$2.75 ROR 1-Yr: 63.7%
Risk Ranking: Caution Warranted
Valuation: Based on our risked NAV ($3.03/share) that also equates to 4.0x 2014E debt-
Key Risks to Target: Commodity prices, exploration, project execution,
Event
¡ Calvalley's operations update noted that Q4 production has averaged
~2,850 bbl/d with average sales volume of around 3,250 bbl/d (above
our estimate of 2,400 bbl/d mainly due to a decrease in the inventory
level).
Implications
¡ Current crude production is running in the 5,600-5,800 bbl/d range with
the Hiswah contributing ~1,300 bbl/d, Ras Nowmah at ~1,100 bbl/d and
Al Roidhat field at ~450 bbl/d. With the depletion of its inventory
volumes to 20,000 bbl, we anticipate the sales volume should move
closer to the current production level that is in-line with our Q1/13
estimate. We look upon any indications from its current strategic review
as its biggest catalysts over the next 3 months.
¡ We maintain our 2-Sector Perform rating on Calvalley and our one-year
target price of $2.75 per share, based on our unchanged NAVPS of
$3.03.
Recommendation
¡ Political challenges in Yemen, export disruptions, and concerns around
the availability of required service equipment could continue to act as an
overhang on the stock in the near term. Calvalley's ability to successfully
ramp up production and show incremental exploration/appraisal success
in 2013 will be key points for the market.
Pertinent Revisions
New Old
CFPS12E US$0.39 US$0.36
CFPS13E US$0.45 US$0.50
Qtly CFPS (FD) Q1 Q2 Q3 Q4 Year P/CFPS
2011A $0.05 A $-0.02 A $0.12 A $0.13 A $0.28 6.1x
2012E $0.09 A $0.11 A $0.06 A $0.12 $0.39 4.6x
2013E $0.09 $0.09 $0.09 $0.17 $0.45 3.8x
2014E $0.17 $0.17 $0.18 $0.18 $0.70 2.4x
(FY-Dec.) 2010A 2011A 2012E 2013E 2014E
Earnings/Share $0.11 $0.22 $0.30 $0.31 $0.48
Cash Flow/Share $0.22 $0.28 $0.39 $0.45 $0.70
Debt-Adj CF Multiple/Share 19.1x 3.4x 2.5x 3.1x 2.4x
Price/Earnings 45.3x 7.9x 6.1x 5.6x 3.5x
Prod-Oil (mbbl/d) 2.3 2.1 2.5 3.3 5.0
Prod-Nat Gas (mmcf/d) 0.0 0.0 0.0 0.0 0.0
Operating Cash Flow (M) $21.9 $27.6 $36.9 $41.4 $63.6
Net Cap Exp (M) $24.1 $25.1 $44.8 $78.8 $88.0
IBES EPS 2012E: $0.30 NAV C$3.57
IBES EPS 2013E: $0.43 P/NAV 0.47x
Historical price multiple calculations use FYE prices. Source: Reuters; company reports; Scotiabank GBM estimates.
All values in US$ unless otherwise indicated.
Capitalization
Shares O/S (M) 94.3
Market Cap (M) C$158.4
Float O/S (M) 75.9
Float Value (M) C$127.5
ScotiaView Analyst Link
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Exhibit 1 - Calvalley - NAVPS Summary
Building Blocks of NAVPS
47% 46%
55% 54%
15% 15%
$0.00
$2.00
$4.00
$6.00
$8.00
$10.00
$12.00
$/Share
0%
20%
40%
60%
P/NAV
Qarn Qaymah (Basement) $0.00 $0.00 $0.00 $0.00 $2.98 $3.18
Qarn Qaymah (Kohlan/NGL) $0.00 $0.00 $0.00 $0.00 $1.44 $1.63
Ras Nowmah (Prospect) $0.00 $0.00 $0.08 $0.09 $1.70 $1.89
Hiswah/Al Roihdat/Auqban $2.58 $2.74 $1.94 $2.06 $3.83 $3.94
Balance Sheet/Land/Fx $0.99 $0.92 $1.01 $0.95 $1.01 $0.95
Target Price $2.75 $2.75 $2.75 $2.75 $2.75 $2.75
Current Price $1.68 $1.68 $1.68 $1.68 $1.68 $1.68
P/NAV 47% 46% 55% 54% 15% 15%
Base Strip Base Strip Base Strip
Base 2P NAV Risked NAV All-In Identified Projects
$10.96
Unbooked
Upside
Source: Company reports; Scotiabank GBM estimates.
Inventory Sales Support a Strong Q4
¡ A detailed Summary of our NAVPS is included in Exhibit 1.
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Exhibit 2 - Calvalley - Snapshot
US$000's unless otherwise noted 2008 2009 2010 2011 2012E 2013E 2014E
Production
Crude Oil & NGLs (bbl/d) 2,261 2,160 2,256 2,081 2,509 3,269 5,000
Natural Gas (mcf/d) 0 0 0 0 0 0 0
Equivalent (boe/d) 2,261 2,160 2,256 2,081 2,509 3,269 5,000
% BOE growth -14% -4% 4% -8% 21% 30% 53%
% Natural Gas 0% 0% 0% 0% 0% 0% 0%
% Crude Oil 100% 100% 100% 100% 100% 100% 100%
Price Assumptions ($/boe) 90.25 64.48 77.57 97.83 110.99 98.50 94.75
Operating Netbacks ($/bbl) 71.01 45.70 57.18 74.61 82.16 72.56 70.28
2P Reserves (Net) mmboe 11.2 12.3 14.4 13.4 N/A N/A N/A
Cash balance US$M 21.0 20.0 19.6 4.1 1.6 (35.7) 0.0
Operating Cash Flow US$M 31.1 13.6 21.9 27.6 36.9 41.4 63.6
Financing Cash Flow US$M (42.0) (10.2) (1.8) (6.0) (0.9) 0.0 0.0
CFPS (D) $0.31 $0.14 $0.22 $0.28 $0.39 $0.45 $0.70
CFPS growth -11% -55% 62% 28% 38% 16% 53%
Net Capital spending (US$M) $28 $12 $24 $25 $45 $79 $88
Free cash flow (US$M) $4 $2 ($2) $2 ($8) ($37) ($24)
ROACE (%) 13% 2% 7% 12% 13% 12% 16%
Valuation
P/CF 5.5x 12.3x 7.6x 6.0x 4.3x 3.7x 2.4x
Debt Adjusted Cash Flow (US$ 31.13 13.60 21.91 27.57 36.70 40.75 63.18
Debt-adj CF multiple 1.1x 14.4x 19.1x 3.4x 2.5x 3.2x 2.4x
D/CF -2.4x -5.2x -3.2x -2.7x -1.8x -0.7x -0.1x
Net Debt/Cap -91% -79% -68% -64% -44% -13% -2%
Shares Outstanding [phone] 98218 97714 94821 94314 94314 94314
Net Debt (Year End) (US$M) -75.77 -70.71 -69.68 -75.36 -66.60 -29.27 -4.85
Source: Company reports; Scotiabank GBM estimates.
ScotiaView Analyst Link
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Appendix A: Important Disclosures
Company Ticker Disclosures (see legend below)*
Calvalley Petroleum Inc. CVI.A J
I, Gavin Wylie, certify that (1) the views expressed in this report in connection with securities or issuers that I analyze accurately reflect my
personal views and (2) no part of my compensation was, is, or will be directly or indirectly, related to the specific recommendations or views
expressed by me in this report.
This research report was prepared by employees of Scotia Capital Inc. and/or its affiliates who have the title of Analyst.
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profitability of Scotiabank, Global Banking and Markets and the revenues generated from its various departments, including investment banking.
Furthermore, the research analystfs compensation is charged as an expense to various Scotiabank, Global Banking and Markets departments,
including investment banking. Research Analysts may not receive compensation from the companies they cover.
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*