Seven Generations Energy Ltd. class A common shares T.VII

TD

[retiredcf]

Their new target is $16.50. GLTA

Seven Generations Energy Ltd.

(VII-T) C$11.62

'19 Focus: Sustaining Capex, Improving Efficiency & Growing FCF

Event

Announces 2019 Budget and Guidance

Impact: NEUTRAL

CF Budget (at US$50/bbl WTI) to Keep Production Roughly Flat: The 2019 budget of $1.25B is expected to produce 200-205 mBOE/d. The majority of the budget ($1.1B) is targeting sustaining capital, with $780mm for Nest 2, and $320 million for Nests 1 and 3. The remaining $150mm will be spent on delineation and optimization activities.

 Our View: The business model reflects VII's evolution to a more mature entity. Given macro industry challenges and historical intra-year production volatility, and investor focus on BOE/d. We believe that this strategy should result in a more stable, sustainable entity and move the focus of investors away from quarterly production data-points towards longer-term value creation.

Going forward, the value proposition for equity investors will be driven by:

• Moderating the base decline rate to create a growing FCF profile.

• Improving capital and operational efficiencies by exploring concurrent drilling of the multiple horizontal intervals, building additional water handling infrastructure, and mitigating declines through small optimization initiatives on legacy assets.

• Amplifying per share returns by potentially allocating excess CF towards repurchasing shares. Under our 2019E US$55/bbl WTI scenario, we forecast ~ $210 mm of FCF, which could repurchase ~5% of shares outstanding at ~$12/ share.

  Q4 Update: Volumes Meeting Prior Guidance Range and Active on The NCIB:

  2018 Production Averaged ~202 mBOE/d (guidance 200-210 mBOE/d). This implies Q4 average production of ~213 mBOE/d, although we believe that the exit rate was closer to 200 mBOE/d due to the deferred the start-up of seven wells until January (originally scheduled to start-up in November). VII repurchased ~10 million shares under its NCIB program. This represents ~3% of outstanding shares.

  TD Investment Conclusion

  By moderating capital spending, VII should see the benefit of lower corporate declines and well position the company headed into 2020. With minimal exposure to Canadian gas markets and a compelling valuation of 2019E EV/DACF of 3.8x, we believe that the current share price represents a good entry point for investors.
  
   

[Chris_toronto]

VII will operate for the whole of 2019 to extract 75 million barrels-oe from their reserves to break even. Hardly something to get excited about. That's at $50 WTIC avg. But they don't sell at WTIC pricing so why not include the real price of their commodity in the calc? And what if WTIC average less than $50? As I said, nothing to really get excited about.