Zacks upgrades Dejour Energy to Outperform
Zacks Small Cap ResearchBy Zacks Small Cap Research | Zacks Small Cap Research – 5 hours ago
Symbol Price Change
DEJ 0.1591 +0.0144
Yesterday, Zacks upgraded Dejour Energy (NYSE MKT:DEJ) to Outperform based on two expected upcoming positive events, namely an anticipated positive revision of the reserve estimates in the annual release of the 51-101-compliant assessment and the awaited follow-through of LOI announcement concerning a strategic partnership with a private Singapore-based company.
The updated NI 51-101 reserve estimate, which usually is released in February or March, should boost the value of the Net Proved Reserves (PV-10) of Kokopelli, if the independent evaluation of reserves utilizes more accurate forecasts of natural gas prices than last year’s assessment, which utilized a natural gas price assumption of $2.33 per Mcf for 2013 and $2.81 for 2014. During 2013, natural gas prices actually remained above $3.00 all year, usually trading above $3.50. And recently, natural gas prices have been very strong across all delivery dates. In December, prices shot above $4.00, and the very cold weather in January pushed the February delivery price above $5.00 last week. We look forward to the updated NI 51-101 reserve estimate. In addition, the production profile of the Kokopelli wells should aid in the assessment of the reserves.
All four wells of Phase 1 of the Kokopelli project in Colorado’s Piceance Basin are in production. Management continues to proceed with the project’s development of the tight gas sand play in the Williams Fork formation and plans also to proceed with developing the Niobrara/Mancos shale gas play. The Phase 2 plan consists of drilling and completing seven Williams Fork vertical wells and one Niobrara well during mid-2014. Management seeks both to demonstrate the Niobrara/Mancos potential of Dejour’s Colorado properties and to preserve the leasehold on northern portion of Kokopelli by attaining held-by-production (HBP) status. Funding for the Phase 2 project is expected to come from the announced venture with a private Singapore-based company, which is expected to invest $27.5 million in Dejour’s Kokopelli project over two years in return for 85% of Dejour’s Colorado interests.
Other positive developments include Canadian Western Bank renewing Dejour Energy’s existing $3.5 million credit facility in December, Dejour Energy closing a private placement of 7,000,000 shares at C$0.11 per share in January and management’s cost reduction plan targeting about a 40% decrease in G&A expenses. Also yesterday, Dejour announced that the NYSE MKT exchange accepted the company’s compliance plan and granted an extension until April 4, 2014 for compliance with Section 1003 (a) (iv) of the NYSE MKT Company Guide and May 22, 2015 for compliance with Section 1003 (a) (ii) and (iii).
Our rating on Dejour’s stock is upgraded to Outperform, and we raise our price target back up to $0.50, which is based upon Net Asset Value (NAV). We expect the re-adjusted 51-101-compliant year-end reserve valuation, along with the consummation of a definitive agreement with a Singapore-based company and strong natural gas pricing, to provide positive momentum that should outweigh recent disappointments that have pressured the stock over the last few months
Sentiment: Strong Buy
oilwars3, my thought is part of SECO's due diligence would have them doing their own reserve estimate with flow information that they are already privy to. If I was SECO and making this deal, I would certainly make my offer "before" the value goes up from re-evaluation. This play seems to have many moons lining up. Claw-backs can be negotiated in many forms including buy-back provisions to increase share of revenue. There is already confirmation that these claw backs are part of the deal. My research conglomerated with corporate tactics would potentially place Dejour in a position to sell the company with provisions for the future buyer to have buy-back privileges based on reasonable return on investment. This activity can be construed as typical smoke and mirror behaviour but basic math is still the guiding principle. I do hear echoing talk on the ground that neighboring companies to Dejour's leases are following the story very closely. Basically, we have interest from various local and global companies that deduce the risk ratio to drill on Dejour lands is equitable. With the NYSE plan being approved, Dejour can now put in motion the proposed plan which must demonstrate the ability to be viable. Currently Dejour is equity rich and cash poor. Now is the time to play the equity card. Timelines are tight so my guess is we are going to see some swift movement of activity both in the field and on the exchange in the near future. GH5