RE:RJ Repentence ANALYSIS Consolidating the Peace River Oil Partnership: OBE announced that it would be acquiring a 45% working interest in the Peace River Oil Partnership (PROP) from CIC for consideration of $43.5 mln (before closing adjustments). The net purchase price is expected to be in the range of $36 mln. The transaction brings the Company’s working interest in the partnership up to 100% allowing OBE to optimize future development plans. The acquisition adds 2.4 mboe/d of current production which realized a netback of $37/boe in 3Q21. We peg the transaction multiple at roughly 1.2x FFO at current strip pricing.
Acquisition financing: The acquisition was funded by a $25.9 mln offering of subscription receipts with the balance of the purchase price funded by limited-recourse debt.
Clearwater upside. Beyond the attractive multiple paid for near-term cash flow, the consolidation of PROP brings OBE 188 net sections of Bluesky and Clearwater rights in an area that has seen some notable offsetting well results (namely the BTE Peavine results). With existing infrastructure in place and a low pre-payout royalty structure, the Clearwater is poised to offer the Company the next leg of growth beyond its core Cardium position.
Adjustments to guidance: Management has provided updated guidance to reflect strong year-to-date operating results as well as, the impacts of the consolidation of PROP. OBE now expects full-year production to be 24.6-24.8 mboe/d up from previous guidance of 24.3-24.5 mboe/d. New capex guidance of $141-$143 mln is up slightly from previous guidance of $136- $138 mln.
VALUATION Our standard valuation method follows a blended approach partly based on a sum-of the-parts NAV build up (PDP reserve value + risked upside). We arrive at a NAV of $7.60/share, see Ex. 7. In addition, we also use an implied EV/EBITDA approach, taking in context historical and relative valuations, and what we suspect investors require on a sustainable Debt-Adjusted FCF yield metric. Given this, we apply an unchanged 3.5x forward EV/EBITDA multiple. We are increasing our target price to $7.50 (from $7.00 previously) and raise our rating to Outperform.