With Brent spot @ $115 bl , NG a little past 4. and good volume, it is nice to anticipate good drilling results! The market usually anticipates good and bad news. All indicators look positive for now. Gooooooooooo WRES!! Can we hope for an energy bill that (with failure to get carbon caps), NG will get a push to replace coal? I can dream, can't I?? GLTA
Barron's has a story this week in which it cites a Barclays report in which the bank has raised its 2011 oil forecast price to $106 avg, up from $92...Previously, Barclays had forecast $106 avg annual price for 2012...did not see a revision for that forecast.
If WRES can successfully bring back online 400ish bopd at WTU with hoped-for/expected (per Pritchard report, we hear) within next 90 days, company could be back to 2900-3000 bopd...And with new drilling having recommenced, we could see 2nd half revenues of close to $55-60MM if oil prices, indeed, stay at these elevated levels...In fact, if Barclays is right about $106 avg price for 2011, 2nd half prices would actually rise a bit to make up for Q1 avg price that was probably closer to high 90s.
So, if WRES can announce water permit relief and demonstrate success on these first 4 wells they are now drilling (by this time, company should be onto its 2nd well), organic growth will resume, just in time, perhaps, for continued strong pricing.
If WRES can end the year at 4000 bopd production, that is 1.4MM barrels of oil for 2012....If WRES can net $100, that is $140MM + $30MMish for natgas....$170MM revenue...65% ebitda margin means $112MM in cash flow in 2012.
Current TEV of WRES at $5 is 5 x 71MM shs ($355MM) + $55MMish net debt or $410MM....Trading at approx 3.6x next year's possible cash flow...Mkts won't/don't have a handle just yet on a good 2012 top line/cash flow number due to the environmental uncertainty and the likely success of this year's 14 wells.
However, if you assume company will simply do 3000 bopd in 2012, that is 1.08MM barrels which is $108MM in top line + $30MM nat gas for $138MM...65% margin is $90MM cash flow.
Company is still trading at just 4.6x next year's cash flow.
Stock looks reasonably valued/cheap here, esp when you consider that 3000 bopd is a rather conservative estimte...Company will be able to bring back SOME portion of the 400 bopd that has been shut-in and company will succeed on most of their 14 wells...Even a 50% success rate means 7 x.8 NRI or 5.6 wells at 150 bopd or 800 bopd.
So, from current production of 2600ish bopd, company should easily add 1000 bopd to get to at least 3600
Seriously Sumark, what do you do for a living? I am guessing something like accounting, financial guy, etc. Regardless, I have never seen such sophisticated financial analysis on a message board before. We are lucky to have you.
I can't really add much to your analysis without detracting from it, but I am concerned that the Prichard upgrade is giving us all false hope that the water or Aqmd issues are resolved (i.e., one of the assumptions upon which you base your analysis). If a regulatory issue were actually resolved, I think we would get a PR (even though WRES never issues "update" PR's). I am going to email the company again re: an update on the regulatory issues and we will see what they say.
Your point about natgas is a good one...WRES is primarily about WTU/NWU oil...with $100+ NYMEX, that is a GREAT thing
But, the future of natgas could be quite solid, esp in light of the nuclear disaster in Japan...Already,it seems likely that nuclear plans will be slowed/delayed here in the US...Meantime, it is not inconceivable that older nuclear plants could (emphasis on could)be de-commissioned due to increased regulatory scrutiny.
Nat gas is the likely marginal fuel choice of utilities going forward...Coal expansion is not going to be given a strong green light these days....
WRES currently produces approx 5 bcf at Cow Creek....Company did not participate in much new drilling last year..Mostly workover stuff. But this year's capex budget will see expansion...So, organic growth, coupled with possible higher prices, could see natgas revenues for WRES reach $30MM next year if production rises to 6 bcf and gas hits $5....DBLE, one of WRES' partners, announced at its last CC that they have made some $5 hedges for nxt year..
So, 6 bcf at $5/mcf means $30MM in natgas revenues for WRES in 2012...Not too shabby...And if natgas prices do move significantly higher in the future due to $100/110/120 oil, WRES can see much bigger organic growth in Cow Creek wells, as there are over 1000 locations to be drilled...With roughly 40% economics in the play, WRES could see its natgas revenues move up nicely...Of course, $100 oil will still be a grand slam, by comparison
Regarding revenues, analysts have set us up to beat earnings estimates for the next quarter. From Schwab:
"First Quarter Earnings Announcement Expected: The next earnings date is expected on 05/05/2011. With 5 analysts covering WRES, the consensus EPS estimate is $0.04, and the high and low estimates are $0.08 and $0.01, respectively."
With $100 oil, a consensus eps of 4 cents is a "good place to be."