Q4/22 NRWhen a quarterly NR is released, I read it. As I go through wondering what the next paragraph will reveal, various things stand out. First impressions I suppose.
Here are mine.
1. Their long term debt was $225.3 million. This caught my attention because $225 is the target long term net debt level. That magic number we've been waiting for. After this, free cash flow goes elsewhere - ie back to the company and back to shareholders (buybacks and/or dividends).
On Dec 31/22 their net debt consisted of $225.3 million in long term debt and $91.5 million of working capital deficency (meaning their accounts payable exceed accounts recievable by that amount).
Translation, if you give them 30 days to pay their bill, they will pay on day 30!. ie, on Dec 31/22, they were borrowing $91.5 million interest free. ie, they don't miss a chance to save money. AKA free vendor financing!
They are probably in a similar situation today. Then in Q2, during break up, while drilling is suspended, they get loads of cash, with minimal expenses, and pay off the accounts payable balance (what they did last year).
2. They have drilled 11 Viking Wells (they may still be drilling number 11 today). They've been starting a new one every 5-6 days since the start of Jan. This is their entire 2023 Viking budget. ie, All their planned 2023 Viking wells drilled in Jan/Feb 2023. That sounds like 1000+boe/day coming on in Q2.
Last year they drilled their Viking wells during break up in Q2 (apparently this is one of the few areas in Alberta that is drillable during break up). I thought they may do the same this year. If they don't, it means less capex in Q2, and more Q2 free cash flow.
3. They got some solid Cardium results. One came in with 667 boe/day IP30.
This caught my attention for two reasons. First its a very good number. Second these Cardium wells compete for capital with Viking and Peace River. The fact that Viking and Peace River are getting capex, means mgmt thinks they are financially competitive with Cardium wells like this.
ie, if the Peace River and Viking results were not good, all the Capex would be going to Cardium drilling.
4. They drilled 61 wells in 2022. 58 were put on production in 2022, with the other 3 to be put on production in early 2023. It follows that all the 61 wells they drilled, are producers - ie zero duds. I thought they may of had a few duds in Peace River - apparently I was mistaken.
5. They didn't give any production numbers for their Q4 Bluesky (peace river) wells. They said they are all producers. One wonders why? Is it because they are average producers not worthy of mention, or poor performers, or are they trying to keep good information to themselves for now.
They mentioned their first Clearwater results - 96 boe/day, which seems to mostly come from 3 of 8 horrizontal legs. This implies much better results to come as they figure out how to drill these wells.
6. They increased their book value by claiming assets that had previously been excluded - ie ground that wasn't economic to drill at lower oil prices, and prior tax losses that couldn't be factored in when they were unprofitable.
Its nice to see them in a position where they can put some of their tax losses on their balance sheet (ie, they are opearating at a taxable profit. That tax does not have to be paid, because it is being cancelled out by prior tax losses).
7. Its nice to see the Stock buy back is approved. Now they just need to decide how much they can spend. Note they set up an Automatic Buy Back Plan for blackout periods only. Translation - during all other periods, they will be buying when the price is right!
8. They are currenlty using 3 rigs - one in Peace River, one in Cardiam and one in Viking (all precision drilling - FYI you can see them on precision drillings web site). The Viking one is about stop. What happens next? Will they just use 2 drilling rigs in March? Or will they start a second one in Peace River or Cardium? I don't know.
Another option is they may keep March drilling to 2 rigs, and use part of that 3rd rig money to buy shares.........maybe!
I'm left with the feeling they would like the share price to be higher - particularly by the end of March so they can get a bonus.
It I had to speculate - I'd say if oil prices increase in Q2, then we may see another batch of Viking wells get drilled (similar to last year). But if oil prices say around where they are, this money is used to buy shares.
So, the $64 question now is - whats the status on their attempts to increase their line of credit so they can buy back shares? As soon as that happens, expect to see shares getting purchased.