% | $
Quotes you view appear here for quick access.

Lone Pine Resources Inc. Message Board

  • wolf_z2012 wolf_z2012 Dec 12, 2012 2:07 PM Flag


    November 21, 2012
    Equity Research
    Lone Pine Resources, Inc.
    LPR: Canadian M&A Continues--Pinecrest/Spartan Merger Announced
    • Impact: Positive. This morning (11/21), two Canadian juniors, Pinecrest
    Energy and Spartan Oil Corp., announced a merger agreement, subject to
    approvals from shareholders and the Court of Queen’s Bench of Alberta.
    Combined entity would equate to a $1 billion enterprise value E&P company with
    assets at Evi-Slave Point and Pembina-Cardium. Transaction should be positive
    for Lone Pine as we believe the company should benefit from what has been an
    active M&A market in Canada. We recognize that LPR’s underlying asset value
    has been overshadowed by the company’s liquidity and balance sheet. However,
    given recent success of its asset sale program with proceeds exceeding high-end of
    the $50-100MM target, and operational execution at Evi, we believe LPR is an
    attractive takeout target given that shares currently trade at a steep discount to
    our $7.78 NAV. We believe if the Street doesn't get there, industry will and
    continued consolidation in the region is supportive of this thesis.
    • Lone Pine Impacts. As we wrote last month in our publication E&P: Stars
    Aligned For Additional M&A Activity, we believe Lone Pine is an eventual
    acquisition target given the steep discount to our $7.78 NAV at which shares
    currently trade. Liquidity and balance sheet remain immediate concerns, though
    last week, LPR announced the Wild River asset sale for $82MM. With execution
    on the asset sale program, the company is better positioned to execute on its
    program at Evi and would also be more attractive to potential suitors on the M&A
    front, in our view. We believe if the Street doesn't get there, industry will and
    continued consolidation in the region is supportive of this thesis. Importantly,
    prepared comments in the PRY/STO press release indicate that the combined
    company will remain active on the acquisition front and “will look for
    opportunities to acquire stable, low decline, assets with attractive netbacks.”
    • $130MM In Liquidity Following Wild River Sale. LPR's revolver base
    stands at $325MM, down from $375MM following midyear reserves and the
    Kaybob sale. LPR management anticipates a $50MM reduction given Wild River
    sale, which given outstanding borrowings of $237MM as of September 30, 2012,
    equates to $130MM in liquidity by our estimation after accounting for asset sale
    proceeds of about $92MM expected in Q4 2012. Given our $100MM capex
    estimate in 2013, and cash flow generation of about $75MM according to our
    model based on $91.50/bbl and $3.75/Mcf in 2013, the company is in a sufficient
    liquidity position, in our view. LPR continues to look at additional noncore asset
    sales or potential Evi JV to further solidify balance sheet. Importantly, we model
    the company remaining within its 4x debt-to-EBITDA covenant through 2014.
    Valuation Range: $7.00 to $9.00
    Our valuation range is based on our NAV estimate, which includes value for both
    proven and unproven reserves, as well as other net assets and liabilities. Our NAV
    estimate for LPR is $7.78 per share. Risks to our NAV include material sustained oil
    and gas price weakness and failure of new assets to live up to expectations.

    Sentiment: Strong Buy

    SortNewest  |  Oldest  |  Most Replied Expand all replies