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Lone Pine Resources Inc. Message Board

  • A Yahoo! User Nov 20, 2012 12:53 PM Flag

    Credit Suisse Price Target from Nov.15th

    "Valuation
    We are maintaining our US$2 target pending more clarity on capital plans and results of
    the strategic review process. Our target equates to 9.0x 2013E EBIDAX and is set at a
    discount to our C$5.70/sh risked NAV."

    ----------
    In my opinion Credit Suisse has been more conservative on their price targets, but if you read between the lines this stock could be in the $2-$5 range in a very short time period. As they are waiting for more data in regards to production, waterflooding and potential sells, which would all easily raise their price targets. I'll try to attach more of the doc below...sorry I couldnt attach exhibits as they are table data and don't display correctly.

    --------------------
    "14 November 2012 Americas/Canada
    Equity Research
    Oil & Gas Exploration & Production
    Rating NEUTRAL* [V] Price (14 Nov 12, US$) 1.23 Target price (US$) 2.001 52-week price range 7.66 - 1.16 Market cap. (US$ m) 104.73 Enterprise value (C$ m) 441.32 *Stock ratings are relative to the coverage universe in each analyst's or each team's respective sector. 1Target price is for 12 months.
    [V] = Stock considered volatile (see Disclosure Appendix).
    Research Analysts
    Jason Frew
    Terence Chung
    Lone Pine Resources Inc (LPR)

    Step 1, Step 2, Step 3...?
    Changes to Estimates: While Lone Pine’s Q3 results were largely in line with our estimates (see our earlier note, Q3 In Line, Wild River Sale Buys Time), we have elected to lower our forecast rate of capital spend for 2013 and beyond with a consequent lowering of production and cash flow estimates. We now forecast C$75 million of spending annually going forward (vs. C$100 million) with continued declines in gas volumes and now modest declines on the liquids side. We have also now incorporated the company’s announced sale of Wild River properties into our estimates. As a result, we have made the following changes to full year estimates for Lone Pine. For 2012, our operating EPS/CFPS go from C$(0.32)/0.94 to C$(0.38)/0.92 while 2013 go from C$(0.40)/0.66 to C$(0.41)/0.45.
    Step 1, Step 2, Step 3…?: Management took the time on the conference call to update investors on the strategic asset review process first announced in September. To date the process has been successful with proceeds from Step 1 (Kaybob sale) and Step 2 (Wild River sale) coming in at the high end of internal targets. With combined proceeds of ~C$100 million going straight to the balance sheet, and with capital spending for 2012 expected to be at the low end of guidance, we now forecast YE debt to LTM EBITDA at 3.4x. Management indicated that Step 3, the core asset review, is well along in its process with potential for an update to be timed with a budget release in early 2013. We believe a transaction to surface upfront value at the Evi light oil play, with a capital carry, is required for Lone Pine to reset its balance sheet and establish a financial platform for growth. With an independent resource assessment for Narraway/Ojay now in hand, there is further potential to surface value from the asset base over time.
    Valuation: We are maintaining our US$2 target pending more clarity on capital plans and results of the strategic review process. Our target equates to 9.0x 2013E EBIDAX and is set at a discount to our C$5.70/sh risked NAV.

    Changes to Estimates
    While Lone Pine’s Q3 results were largely in line with our estimates (see our earlier note, Q3 In Line, Wild River Sale Buys Time), we have elected to lower our forecast rate of capital spend for 2013 and beyond with a consequent lowering of production and cash flow estimates. We now forecast C$75 million of spending annually going forward (vs. C$100 million) with continued declines in gas volumes and now modest declines on the liquids side. We have also now incorporated the company’s announced sale of Wild River properties into our estimates. As a result, we have made the following changes to full year estimates for Lone Pine. For 2012, our operating EPS/CFPS go from C$(0.32)/0.94 to C$(0.38)/0.92 while 2013 go from C$(0.40)/0.66 to C$(0.41)/0.45. Given that Lone Pine has 2,500 b/d of oil hedged at nearly $100/bbl for next year, our 2013 operating CFPS estimate only declines by C$0.01 at strip pricing.

    Source: Company data, Credit Suisse estimates
    Step 1, Step 2, Step 3…?
    Management took the time on the conference call to update investors on the strategic asset review process first announced in September. To date the process has been successful with proceeds from Step 1 (Kaybob sale) and Step 2 (Wild River sale) coming in at the high end of internal targets. With combined proceeds of ~C$100 million going straight to the balance sheet, and with capital spending for 2012 expected to be at the low end of guidance, we now forecast YE debt to LTM EBITDA at 3.4x. Management indicated that Step 3, the core asset review, is well along in its process with potential for an update to be timed with a budget release in early 2013. We believe a transaction to surface upfront value at the Evi light oil play, with a capital carry, is required for Lone Pine to reset its balance sheet and establish a financial platform for growth. The covenant on the company’s borrowing base stipulates that Lone Pine may not breach a total debt outstanding to LTM adjusted EBITDA of 4.0x. Absent a transaction, we expect Lone Pine would not risk violating this covenant, based on our current view of capex, until the end of H113.
    With an independent resource assessment for Narraway/Ojay now in hand, there is further potential to surface value from the asset base over time. At C$0.10/mcf, the 2.1 Tcf of contingent resource estimated at Narraway/Ojay is worth C$2.40/sh.
    Evi Operations Update
    Operationally, subsequent to the end of the quarter, Lone Pine completed the drilling of its 10 well per section downspacing pilot. Results thus far have not shown any indication of offsetting wells being negatively impacted on production. While still early, we think further monitoring of downspacing potential may indicate additional drilling opportunities at select locations within Evi. Lone Pine has noted previously that offsetting producers in the vicinity of its acreage have downspaced to an equivalent effective density of 16 short horizontals per section (drilling eight long horizontals).

    Lone Pine also discussed early results on its operated waterflood pilot project at Evi where offsetting producer wells (vertical and horizontal) have shown positive response to injection (production rates have shown increases upwards of 300%). Within the capital-constraints faced by the company, management expects to spend ~10% of its capital next year to further progress waterfloods. The next step would be to implement a horizontal injector. If successful, estimates of total recovery from secondary methods may reach up to 30%.
    Excluding waterflood and considering increased drilling density only, beyond six wells per section, we previously highlighted the unbooked resource potential at Evi could be upwards of 60 mmbbls, as illustrated in Exhibit 2.

    Source: Credit Suisse estimates (assumes 145 Mbbl EUR) Source: Credit Suisse estimates (assumes 145 Mbbl EUR)
    Valuation
    We are maintaining our US$2 target pending more clarity on capital plans and results of the strategic review process. Our target equates to 9.0x 2013E EBIDAX and is set at a discount to our C$5.70/sh risked NAV.


    Companies Mentioned (Price as of 14 Nov 12)
Lone Pine Resources, Inc. (LPR, $1.23, NEUTRAL [V], TP $2.00) 

    Disclosure Appendix
    Important Global Disclosures
    I, Jason Frew, certify that (1) the views expressed in this report accurately reflect my personal views about all of the subject companies and securities and (2) no part of my compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this report.
    See the Companies Mentioned section for full company names.
    3-Year Price, Target Price and Rating Change History Chart for LPR

    Sentiment: Strong Buy

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