May 07:
Source: http://www.investing.com/analysis/parex-resources-250996?
Resilient and leveraged to the upside
Despite macro headwinds, Parex Resources Inc (TO:PXT)’s operational strength is evident from material production growth in 2015 and a 114% increase in 2P reserves. Production guidance of 26.5mb/d (representing 18% growth y-o-y) has room for upside if exploration is successful, while the $145-155m should be fully funded at around $50-60/bbl oil prices. Our remodelled valuation indicates a RENAV of C$9.5/share, indicating upside to the shares even without exploitation of 3P reserves, which we see as likely in time and would take valuation to $10.2/share. Importantly, we see this value increasing in the coming years as production increases, supported by recovering oil prices.
Despite macro headwinds, Parex Resources Inc (TO:PXT)’s operational strength is evident from material production growth in 2015 and a 114% increase in 2P reserves. Production guidance of 26.5mb/d (representing 18% growth y-o-y) has room for upside if exploration is successful, while the $145-155m should be fully funded at around $50-60/bbl oil prices. Our remodelled valuation indicates a RENAV of C$9.5/share, indicating upside to the shares even without exploitation of 3P reserves, which we see as likely in time and would take valuation to $10.2/share. Importantly, we see this value increasing in the coming years as production increases, supported by recovering oil prices.
2015 production has started well
Q115 saw exploration success, with the Tilo-1 commencing long-term testing at the end of March. This should add to the Q115 production of 26.7kbd and bodes well for the company’s ability to hit guidance, even with a reduced investment programme. Further exploration is ongoing, with Rumba-1 currently drilling as one of the 11 wells planned in 2015, many of which are in blocks with production and well-understood geology.
Remaining cash flow neutral
We have adjusted our modelling to reflect the recent macro environment. The company took proactive steps to adapt to lower prices with a reduced investment programme to keep within cash flow. We now reflect higher 2P reserves and more robustly model exploration value. We assume Brent $58.5/bbl in 2015, which should provide enough cash flow to largely cover the $145-155m capex bill. Should prices sustain at these levels or higher, Parex has a significant drilling inventory of 62 well locations to develop 2P reserves and can react to exploration success. The company can therefore be flexible in adjusting as the environment develops.
Q115 saw exploration success, with the Tilo-1 commencing long-term testing at the end of March. This should add to the Q115 production of 26.7kbd and bodes well for the company’s ability to hit guidance, even with a reduced investment programme. Further exploration is ongoing, with Rumba-1 currently drilling as one of the 11 wells planned in 2015, many of which are in blocks with production and well-understood geology.
Remaining cash flow neutral
We have adjusted our modelling to reflect the recent macro environment. The company took proactive steps to adapt to lower prices with a reduced investment programme to keep within cash flow. We now reflect higher 2P reserves and more robustly model exploration value. We assume Brent $58.5/bbl in 2015, which should provide enough cash flow to largely cover the $145-155m capex bill. Should prices sustain at these levels or higher, Parex has a significant drilling inventory of 62 well locations to develop 2P reserves and can react to exploration success. The company can therefore be flexible in adjusting as the environment develops.
Source: http://www.investing.com/analysis/parex-resources-250996?
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