TD ReportsI don't know why I should bother since all I get is sh#t and abuse but here are the conclusions from TD Reports that have come out in the last month. The full reports are too long to post here.
The first was published after a site visit on April 6. The second was published after a Tag update on April 20,2017.
TD Action Notes:
April 6,2017
Event
We attended TAG's site visit on Thursday, March 30, and management presentations
on Friday, March 31. In this note, we outline our main takeaways from the trip.
Impact: NEUTRAL to share price, but our positive views of the
company are reinforced.
The quality of TAG's operations has exceeded our expectations. The company
has sophisticated management procedures and field control systems in place,
and these are complemented by a strong culture of detailed attention to health,
safety, and environmental (HSE) practices.
In our opinion, the company has the necessary management and technical
resources and infrastructure assets for its next phase of growth.
Work is progressing on the appraisal of Cardiff (100% W.I.) gas/condensate
discovery and Pukatea (70% W.I.) exploration well, which is planned for Q4/17.
Each of these are high-impact catalysts, and if successful, we believe that the
share price could possibly rise above our target price.
The company has undertaken detailed technical studies of the Cardiff wells
drilled to-date, with the aim of identifying and addressing the issues that could
be hindering flow rates. Imminent work-over and production tests could provide
valuable data points, setting the technical base for future development of the asset
and a possible farm-out deal with industry partner(s) this year.
The Cheal waterflood program is progressing as expected, with production
response anticipated in calendar Q3/17.
The planned shutdown of Cheal production facility for maintenance is underway
and it is expected to take around 10 days in the first half of April 2017.
TD Investment Conclusion
With its recent capital raise of C$15mm (gross), TAG is now in a position to shift
up gears and pursue potentially high-impact exploration and appraisal activities. We
highlight the Cardiff appraisal and Pukatea exploration wells as the catalysts to watch
for this year. TAG is trading at a discount to our Base NAVPS estimate, implying that
these catalysts are available as zero-cost options. If successful, each could provide
a multiple return investment from the current share price. We reiterate our BUY
recommendation and maintain our C$1.35 target price.
April 20,2017.
Event
Yesterday before market open, TAG Oil released its F2018 capital budget and
provided an operational guidance.
Impact: POSITIVE
As expected, following its recent C$15mm capital raise (gross), the company is
significantly increasing its level of exploration and development activity, including
drilling five exploration wells.
A FY2018 budget of C$27.4mm is 30% higher than the FY2016 expenditure of
approximately C$21mm, 174% higher than our FY2017 estimate of C$10mm, and
compares with our previous assumption of C$15mm.
Assuming an average Brent price of US$55/bbl for the year, management expects
to meet the budget from cash flow from operations and current working capital.
We have reduced our Base NAVPS to C$0.62 from C$0.75 (-17%), mainly due to
a reduction in our year-end net cash estimate, caused by a 79% increase in E&D
expenditures. This has reduced our target price to C$1.25 from C$1.35.
FY2018 production guidance of 1,400BOE/d compares with our previous estimate
of 1,500BOE/d (-10%), but this does not include potential upside from the
company's exploration and appraisal activities. Management expects an FY2018
exit rate of around 1,900BOE/d.
Despite a reduction in our target price, we view the update as positive. It
confirms that the company is on track to pursue its potentially high-impact
exploration-led work program. In addition, operations at the main Cheal facility
have recommenced following a planned shutdown for statutory inspections. This
program was completed ahead of schedule, with a lower production impact than
previously anticipated
.
TD Investment Conclusion
With its recent capital raise of C$15mm (gross), TAG is now in a position to shift
up gears and pursue potentially high-impact exploration and appraisal activities. We
highlight the Cardiff appraisal and Pukatea exploration wells as the catalysts to watch
for this year. TAG is trading at a discount to our Base NAVPS estimate, implying that
these catalysts are available as zero-cost options. If successful, each could provide
a multiple return investment from the current share price. We reiterate our BUY
recommendation, with a reduced C$1.25 target price (from C$1.35).