Canaccord: Buy rating and no target for Petro-Victory EnergyAccording to Canaccord Genuity:
Petro-Victory Energy Corp.
RATING: SPECULATIVE BUY
PRICE TARGET: NA
Seeking Strategic Partners in 2015
Investment recommendation
President Energy PLC ("operator") has released test results for the Lapacho well where Petro-Victory holds a 36% working interest. According to the operator, Lapacho had preliminary indications of condensate and gas from the Santa Rosa formation. However, owing to deteriorating hole conditions, the operator was forced to prematurely end the test. Despite the limited information gathered, President Energy believes the Santa Rosa formation can be commercialized with potential resources of 1 Tcf to 5 Tcf plus associated condensate. Given the results to date, PetroVictory plans to engage in discussions with potential strategic industry partners to unlock the full value of the assets. With it having only limited funds currently available, we believe a strategic partnership is the best means to preserve shareholder value while continuing to delineate the company's large prospective resource inventory. Unfortunately, with current market conditions, we suspect there will be ongoing share price weakness until an appropriate strategic partner is announced.
Investment Highlights
• The operator attempted a test of the uphole Icla formation, which management believes was invalid due to possible borehole communication with an uphole formation (which tested gas cut formation water). The operator has suspended the well for future re-entry, but further work will need to be completed to better isolate the Icla formation for future testing.
• The operator has identified additional thickness of the Icla formation in the original Jacaranda prospect, which it estimates could be in excess of 50 metres with 20 million boe of mean prospective resources with a high chance of success.
• The rig has been released with a view to resume drilling on high grade prospects in the summer of 2015. With the results to date, management will engage in discussions with potential strategic industry partners to unlock the full value of the assets.
Valuation
Based on 20%-10% discount rates, we estimate a probabilistic risked value range of C$1.80 to C$3.60/share for Petro-Victory. As the company currently trades below C$1.00/share and has a market cap of less than C$100 million, we have provided only a probabilistic range of possible future values rather than a deterministic target price. We maintain our recommendation of a SPECULATIVE BUY rating.