Post by
NATGASERIFIC on Oct 21, 2010 10:09am
scotia has an outperform
(FEL-T)
Fairborne Energy Ltd.
Energy - Oil & Gas - E&P 20Oct10: $4.31
1-Year Target: $6.50
1-Year ROR: 50.8%Div. (NTM):
.00Div. (Current):
.00
Rating: 1-Sector Outperform
Company Profile
Fairborne Energy Ltd. is a gas-weighted E&P company with multiple operating areas.
Its natural gas properties are located in the Deep Basin and West Pembina/Harlech
areas of Alberta, while its light oil development activities are centred along the
Manitoba/Saskatchewan border at Sinclair. Fairborne’s capital program is focused on
developing the Wilrich horizontal and multi-zone (liquids-rich) Cretaceous gas plays
in the Deep Basin and on exploiting the Torquay/Bakken play in Sinclair. Fairborne
has current production of ~13,800 boe/d (~72% natural gas).
Business Mix (Based on revenues unless otherwise noted)
Production: 72% Natural Gas, 28% Oil
Performance Drivers
Oil and natural gas prices, Drilling program success
Comparable Companies (TSX unless otherwise noted)
CLT, TET, TT, PRQ
Recent Update Text as of 6AUG10
.
Fairborne has announced Q2 results.
.
Production and CFPS in line. Production of 15,486 boe/d and CFPS of
.27 was
in line with our estimates of 15,350 boe/d and
.27 (consensus was
.30).
.
Expect rerating of stock. We believe FEL is poised to emerge from the penalty
box (given poor capital efficiencies in the past) as production performance has
been solid and Wilrich well results continue to impress, which should translate
into share appreciation with continued success.
.
Getting Wilrich for free. FEL trades at a 5% discount to our NAV vs. its peers
at a 21% premium and we believe the Wilrich is option value. Initial results
have been consistent and extremely positive. The first four wells have
outperformed our type curve (we model IP rates of 4.5 mmcf/d and 3.2
bcfe/well). We see over 250 locations in the play.
.
Given its discounted valuation and improving outlook from its Wilrich and
Sinclair plays, we maintain our 1-SO rating and $6.50 one-year price target.