Nice Research update from TD today
Here is some of td`s research update published this morning.
``Long Run Exploration Ltd.
(LRE-T) C$4.28
Q1/13 Results - Setting a Baseline for Future Expectations
Event
LRE announced Q1/13 financial results last night. Our revised forecast
results in an unchanged $7.00 target, and we maintain our BUY
recommendation.
Impact – POSITIVE. Results were in line with consensus, ahead of TD, and
set a positive tone relative to future expectations. In our view, this goes a
long way to reducing execution risk, a concern associated with both
predecessor companies.
The key highlights are:
1) Q1/13 production of 23.6 mBOE/d was in line with consensus of 23.5
mBOE/d (11 estimates) and TD of 23.5 mBOE/d. 18 of 50 Montney oil
wells and 29 of 69 Redwater Viking oil wells were drilled during the
quarter relative to the total budget.
2) Q1/13 CFPS of $0.39 was in line with consensus ($0.38) but ahead of TD
of $0.36, with the slight beat due to lower than forecast royalty rates.
3) LRE completed three transactions aimed at consolidating infrastructure
and land around the Cherhill and Girouxville/Normandville areas in
central Alberta. No changes were made to the 2013 capital or production
budget, although capital was reallocated within the categories.
$16.9mm of A&D to consolidate land and infrastructure in core areas. In Q1/13, LRE spent $22.9mm on
the acquisition of land, infrastructure, and some production at Cherhill and Normandville. Although land and
infrastructure was the objective, there was some associated production with the Cherhill assets—600 BOE/d of
which 200 bbl/d was liquids. Given some of the company’s growth objectives, it did not want to be
constrained by gas handling and processing capacity, hence the strategic nature of this acquisition.
In order to fund these acquisitions, LRE also reported a $6.0mm divestiture, which related to the sale of a gross
overriding royalty on its Edam heavy oil property. Furthermore, this incremental $16.9mm (net) in A&D is
not expected to result in an increase to the 2013 capital program, and will come out mainly from its
‘exploration’ and ‘other’ budgets.
Scheduled downtime at Kaybob Amalgamated (KA) plant already factored into production estimates.
The Semcams KA plant, which processes LRE’s Kaybob South liquids rich gas stream, is expected to be shut
down for four weeks for planned maintenance. This will result in all of LRE’s Kaybob production (roughly
1.8 mBOE/d) being shut in for this time period. Given that this is a planned shutdown, the reduction in
volumes has been budgeted for accordingly. That said, an extended turnaround period would negatively
impact production volumes for the year.
Balance sheet is in reasonable shape, in our view. Subsequent to the quarter, LRE’s lenders renewed its
$450mm credit facilities through May, 2016. Although the company exit Q1/13 with 31% of spare capacity,
we see this improving given that the 2013 capital program was 45% weighted to the first quarter. By year end
2013, we expect that LRE will have 40% available on these lines, which in our view is well within the margin
of safety. On a net debt/cash flow basis, Q1/13 was 1.9x, but we expect this will improve to 1.2x by Q4/13.
Outlook
As shown below, our outlook for 2013 has not changed substantially following yesterday’s release. Our
spending profile has changed slightly and we have increased our oil weighting, resulting in slightly increased
cash flow and netbacks.``
TD is forcasting about 1.93 per share in cash flow for 2013