Post by
Westcoastenergy on May 14, 2024 11:13pm
Canaccord increases target to $18
Tuesday after market, PEY reported Q1/24 results in line with expectations. Production of 125,018 boe/d met expectations as it was largely pre-released with its monthly updates, while CFPS of $1.05 was in line with our $1.03 forecast and consensus at $1.04. Owing to its hedging/marketing strategy and peer-leading cost structure, PEY continues to endure low natural gas prices, generating $91M of FCF in the quarter while continuing to pay a ~9% dividend, despite its nearly 90% weighting to natural gas. Offering more comfort to this, PEY is expected to begin delivering natural gas to the Cascade power plant in Q3/24 where it has 60,000 GJ/d contracted. Further, with the Repsol assets still in the early stages of integration, investors can expect cost reductions towards this asset as it optimizes its processing utilization (another benefit of its owned infrastructure). We believe investors will be rewarded over the next year on an improving FCF profile through both improving natural gas prices and decreasing costs via the company's asset base optimization efforts, while collecting a 9% dividend in the meantime. We continue to rate PEY a BUY and have increased our target to $18.00 (from $17.00) which maps to a 2024E EV/DACF multiple of 5.0x. Highlights from the release: Quarterly results. Q1/24 production averaged 125,018 boe/d, in line with our 125,223 boe/d forecast and consensus at 125,061 boe/d as production was largely pre-released with its monthly updates. CFPS came in at $1.05, in line with our $1.03 estimate and the Street at $1.04. Operational update. PEY spent $113.8M last quarter to drill 17.5 net wells, complete 14.0 net wells, and bring 15.0 net wells online. This also included $18.1M of facilities/ infrastructure spending. Of the 17.5 net wells drilled in Q1/24, nine were drilled on the acquired Repsol lands (six targeting the Wilrich and three the Notikewin). Currently, four rigs are drilling on PEY's lands, targeting three-well pads to minimize rig moves through break-up. Since the beginning of April, PEY has drilled 7.0 net wells with 6.0 completed and brought online. Of these are two Dunvegan wells where liquids content of 20-30 bbls/mmcf exceeds its Spirit River targets. One rig will be dedicated to its Dunvegan program this year to drill a total of 10-12 wells. As mentioned with its May monthly update, due to third-party processing agreements at a deep cut facility, PEY has re-routed 50 mmcf/d of raw gas back to its operated Wild River and Edson facilities. As the company will leave low value ethane in the gas stream to avoid third-party processing fees and increase utilization at its operated facilities, corporate production on a per-boe basis is expected to drop ~2,000 boe/ d while corporate opex will also drop ~4% ($0.12/boe) with realized NGL pricing to increase ~12%. Outlook and estimate changes. PEY maintained previous 2024 guidance of ~135,000-140,000 boe/d on spending of $450-500M. Our updated estimates are summarized in Figure 2. Conference call. PEY will host a conference call Wednesday, May 15 at 11:00 AM ET (9:00 AM MT). Interested parties can access the call by clicking here. Valuation and recommendation. We continue to rate PEY a BUY and have increased our target to $18.00 (from $17.00) which maps to a 2024E EV/DACF multiple of 5.0x. PEY is currently trading at a 2024E EV/DACF of 4.4x, compared to the peer group average of 4.4x.