TORC Oil & Gas Ltd. T.TOG

ye results, big beat

[Ocalaman]

Bottom Line: We view TORC's Q4/16 results and 2016 reserves release to be positive to the shares this morning. Q4 CFPS beat our estimate and consensus by a wide margin on slightly better-than-expected production. Key Points • Strong Quarterly Results. Q4/16 CFPS of $0.28 was ahead of our estimate of C$0.22 and consensus of C$0.23 on production of 19,621boe/d (87% oil and liquids), vs our estimate and consensus of ~19.4mboe/d. The cashflow beat was a function of lower operating and transportation costs due to prior period adjustments on acquired properties, lower-than-expected royalties, and better-than-expected realized pricing. Capital spending in the quarter of C$28mm was lower than our estimate of $31mm, and totaled C$82mm in 2016, compared to a budget of $90mm, as a result of improving capital efficiencies. • 2016 Reserves. 2P reserves increased to 99.6mmboe, representing y/y growth of 10%, with PDP reserves up to 40.9mmboe (up 7% y/y). All in FD&A costs (including FDC) came in at C$16.65/boe (2P), resulting in a recycle ratio of 1.3x. More importantly, PDP F&D and FD&A costs were C$13.29/boe and C$18.59/boe, resulting in operating recycle ratios of 1.6x and 1.2x, respectively. 2P future development costs came-in at C$617.7mm, equating to a conservative 4.8 years of 2017 spending. • Guidance Unchanged. The company has maintained its 2017 capital budget of C$130mm and 2017 average and exit production guidance of 19.9mboe/d and 20.6mboe/d, respectively. We note that TORC has lowered its expectations for operating and transportation costs to $14.00/boe go forward (from $14.50). B