Equal announces 1Q12 results; reiterating production guidance but reducing 2012 cash flow -- Impact: Neutral Equal reported 1Q12 production of 10,383boe/d (51% oil and liquids), which beat our estimate of 9,920boe/d (52% oil and liquids). However, the company missed on cash flow as it posted C$13m, or C$0.36/share, compared with our estimate and the Street’s expectations of C$0.43/share and C$0.45/share, respectively. The miss can be primarily attributed to lower-than-expected realized NGL prices (C$39.03/bbl vs our C$46.63/bbl estimate). NGL differentials are at historically low levels in Oklahoma although we expect them to trend higher in the back half of 2012. The company also announced the continuation of its credit facility of C$200m following the end of 1Q12. We view this positively given that we had initially thought it would have been decreased by ~C$25m following a couple of divestitures in late 2011/early 2012 of ~2,100boe/d. Management also reiterated its 2012 production guidance of 9,500–9,800boe/d (vs our 9,520boe/d estimate), but given prevailing weak natural gas and NGL pricing, cash flow expectations have been reduced to C$50–55m; this is as expected and compares with our current estimate of C$52m. Overall, we are pleased with the results as operations are on track and the miss on cash flow was due to weak NGL differentials, which we expect to revert to more normalized levels in the back half of 2012. We will fine-tune our model but do not expect any material changes. Given the company has just announced a strategic review process, the next catalysts for Equal include further asset rationalization (we are of the view that the Viking and Cardium assets in Canada are the most attractive) as well as results from its Mississippian JV in Oklahoma, which is set to commence in late 2Q12/early 3Q12. We maintain our Buy–Above-average Risk rating and 12-month target price of C$5.
APRIL 27, 2012 Research Oil & Gas Only Mother Nature can turn around natural gas prices this summer, ‘bullish’ outlook for oil-weighted equities maintained; revising our rating on Argosy to Buy–Speculative from Buy–Above-average Risk, and decreasing our targets on Argosy, Equal, NuVista and Waldron Desjardins Capital Markets We are updating our crude oil and natural gas commodity outlook We are increasing our 2012 WTI crude oil forecast to US$95.00/bbl (from US$92.50/bbl) while maintaining our 2013 forecast of US$100.00/bbl. We are also reducing our 2012 Henry Hub natural gas forecast to US$2.60/mmbtu (from US$4.00/mmbtu) and our 2013 forecast to US$3.75/mmbtu (from US$4.75/mmbtu), and presenting our 2014 forecast of US$4.50/mmbtu We are reducing our price targets for natural gas–weighted companies in our coverage universe, namely NuVista Energy (to C$5.00 from C$8.00) in the intermediate/large-cap category, and Argosy Energy (to C$1.40 from C$2.00), Equal Energy (to C$5.00 from C$5.25) and Waldron Energy (to C$1.25 from C$2.00) in the junior category. We are also revising our rating on Argosy to Buy–Speculative (from Buy–Above-average Risk) Highlights. We are updating our commodity price forecast to reflect our 2012 and 2013 crude oil and natural gas