ScotiabankScotia had a .60 target on Pinecrest until the last newsletter. They still seem optomistic that Wade Becker can fix these short term problems. Company Profile
Pinecrest Energy Inc. is an oil-weighted E&P company with assets in Alberta and
Saskatchewan: Red Earth and Southeast Saskatchewan (Bakken) areas. The company was
recapitalized in April 2010. The company main focus is targeting the Slave Point
light oil play in Red Earth utilizing horizontal multi-frac wells. The management
team is led by Wade Becker, President & CEO, who has over 18 years of oil and gas
experience. The majority of management has worked together at Peerless Energy, where
they grew production from 0 boepd to 5,800 boepd prior to its sale to Petrobank
Energy and Resources Ltd. in February 2008 for ~$338 million.
Business Mix (Based on revenues unless otherwise noted)
Production: 95% Oil, 5% Natural Gas.
Comparable Companies (TSX unless otherwise noted)
PPY.A, WSX, SCS, ARN
Recent Update Text as of 14JAN14
. PRY provided an operational update.
. Production Down. PRY noted that Q4 volumes averaged 2,580 boe/d, 8% below Q3
levels due to steeper-than-anticipated declines on new drills, delayed start-up
of three new schemes, and higher-than-expected watercuts on three offsetting
producers. December production was 2,308 boe/d, with current volumes down to
2,300 boe/d.
. Waiting for Response. With the delay of three injection start-ups until
mid-November, PRY is currently monitoring the offsetting producers and plans to
spend minimal capital in 1H/14 until it sees the waterfloods responding. A
remedial plan is in place to restore oil production in the weakest of the three
producers showing high water-cuts. In the meantime, all FCF will go towards debt
reduction, as net debt stood at $130M on a $165M facility at year-end.
. Moving to SP. We have revised our rating to Sector Perform and reduced our
target price, as we had previously stated that once the waterfloods were proven,
the stock should do well. With the issues surrounding the projects, we think
that PRY will be in the penalty box for the time being. Under our revised model,
PRY trades at 3.8x 2014E EV/DACF with 2014E D/CF of 3.0x.
. Our rating moves to SP and our target price to $0.30/share.
Cameron Bean (Scotia Capital Inc. - Canada)