Another National Bank reportJust before I start pasting this, I would appreciate if anyone else could post other institutions report about ATH. Thank you!
Price target slashed to 9 $, OP rating
Taking a more conservative view on the put proceeds timing. Our revised estimates reflect receipt of put proceeds by the end of Q3/14 (from Q4/13). Our estimated timing is reflective of final project approval subsequent to an appeal process which could take 6+ months. It is important to note that Cabinet approval is a parallel process; this could result in an approval over the next month. The other scenario is a mutual agreement between Brion and the FMFN which could accelerate timing. In our view ATH has sufficient liquidity to pursue a scaled back capital program to the end of 2014 with a $200mln credit facility and $165mln option proceeds (infrastructure).
2014; this is contingent upon using the $200mln credit facility and $165mln option proceeds related to the Kaybob infrastructure. The potential for Duvernay JV, discussed below, could create a liquidity injection over the next 6 months.
- Changes to our estimates reflect 1) Dover put proceeds deferred from Q4/13 to Q3/14, 2) Scaled back 2014 capex on the E&P business with the focus on Duvernay land retention ($100mln) and an associated reduction in the light oil production build, 3) Lower 2014 thermal oil capex ($200mln) with operations only focused on Hangingstone Phase I (expected to come on-stream in early 2015).
- Contingency steps to address liquidity. Unfortunately the granted appeal creates more uncertainty for the Dover project and ultimately timing for exercise of ATH’s $1.3bln put with PetroChina. The company has taken contingency steps to increase liquidity (i.e. infrastructure option agreement, Peace River Arch asset divestiture package and scaled back capital plans). Absent of the put proceeds ATH has sufficient liquidity to pursue a scaled back capital program to the end of
- What’s different now? The stock tested the $6/sh level earlier this year following
- the AER Dover hearing. Although uncertainty remains around the Dover process,
the public process to find a Duvernay partner is underway. Industry activity is
heating up in the play and we expect the process to be very competitive due to
ATH’s strategic positioning (largest land package available in the oil transition
window & ownership in infrastructure). We have more comfort now vs. 6 months
ago, that ATH is closer to selling and/or bringing a partner in on the Duvernay.
Recent precedent Duvernay transactions have ranged between $10,000 -
$15,000/acre. Assuming ATH’s ~300 high graded sections and $10,000/ac
implies ~$2bln in potential value. A joint venture would likely be structured with an upfront cash component and capital carry, similar to the PetroChina/Encana JV announced in December 2012. Stay tuned for more disclosure in the coming
months.
No change to Outperform Rating; target reduced to $9 (from $13.00) on
uncertainty on Dover timing. We continue to see significant underlying value in
ATH’s asset base and believe it is not priced into the stock. We have switched our target methodology to sum-of-the-parts from discounted NAV methodology due to ATH’s current funding position and not currently being able to capitalize on oil sands operations beyond Hangingstone Phase I. Under our sum-of-the-parts
analysis, we value the business at $5.85/sh assuming the Dover put is not exercised, and $9.10/sh assuming the Dover put is exercised but timing deferred
to 2014. The oil sands assets are viewed as a free long term option for shareholders (8.5bln barrels of contingent resource). The ongoing uncertainty
around Dover is creating an overhang on valuation which could ultimately put
ATH into play given its distressed valuation.