OTCQB:PSHIF - Post by User
Post by
blackgold909on May 15, 2020 3:30pm
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Post# 31035418
Operations Update
Operations Update Operations Update Strong Q1 Production; Opportunity for a Catch-Up Trade | | | |
OUR TAKE PetroShale provided an update on Q1 production (well ahead of us and consensus) while withdrawing 2020 guidance amid the ongoing economic uncertainty. This stock has not yet participated in any of the bounce/momentum seen in most of the oil stocks, which we see as unjustified. The overhang has been the liquidity, selling volume, and the leverage/pending bank line review. At $0.11/sh, we see potential for a catch-up trade in the short term while the assets have good long-term cash flow potential and value. At current strip pricing (~US$26/b) we forecast PetroShale would free cash flow ~$45 MM.
KEY HIGHLIGHTS - Q1 production crushes estimates. Mgmt. released Q1 production of 14,000 boe/d, well ahead of our estimates of 11,500 boe/d and consensus of 12,500 boe/d. The increased production was due to the Company participating in 21 gross (2.9 net) new wells in Q1.
- No surprise, 2020 guidance pulled due to ongoing uncertainties. The Company had been forecasting production of 11-12,000 boe/d as an average for 2020. We will see how this plays out and hence we are maintaining our estimates for Q2-Q4 at this time, which were conservative relative to Q1 production. While ~44% of PSH’s production is non-operated there have been no shut-ins on PSH’s non-op production to date. At this point, the majority of PSH’s $26 MM capital budget has been spent.
- Improving Bakken differentials and added cost savings. With Bakken differentials improving after briefly rising to US$12-15/b in early April, differentials have really come back recently and are now near ~US$1-2/b, similar to 2019 averages. The improvement can partially be explained in that Bakken crude leaves North Dakota on Dakota Access Pipeline (DAPL) and goes around Cushing, directly to the Gulf Coast. Also helpful is that there are some refineries in the area. Additionally, the Williston Basin overall has shut in ~300,000 boe/d (~25% of production) which helps to balance the local supply/demand. Cash flow in 2020 will also be supported by cost saving initiatives: improved operating efficiencies of $2.4 MM and G&A reductions of $0.7 MM while capital expenditures for the remainder of 2020 are ~$6 MM.
RECOMMENDED ACTION From ~$0.11/sh we like this one for a catch-up trade in the short term
As highlighted, PSH shares have not yet participated in any of the bounce/momentum seen in most other oil stocks. At strip prices of ~US$26/b, PSH trades at 2.9x2020 EV/DACF versus CDN growth peers at ~12x. As investors begin to look beyond the current demand destruction of oil to higher prices in H2/20 (albeit not great prices relative to historical) we believe PSH is demonstrating asset and financial sustainability that warrants a higher valuation. | | | |