IPXL offers the most attractive near-term upside potential in our coverage. While it’s hard not to be somewhat frustrated by the delay in seeing some of the major catalysts play out (Warning Letter close-out and Adderall XR resolution) we think it’s a timing issue that will resolve during 2012.
Sum-of-the-parts (SOTP) value should support the bottom while patience should deliver the upside. No change to BUY rating or $29 price target.
Three things that will drive the stock
1) Remediation: official close-out is still the biggest stock driver with the prior Warning Letter effectively addressed and timing linked to addressing the ’483, which is likely a matter of a couple of months.
2) Adderall XR: settlement discussions are ongoing and we think we’ll ultimately we’ll see one. We think a trial is a trigger for action, which is also likely over the next couple months.
3) IPX-066 PDUFA October: Pre-approval inspection still to come but Hayward facility not a roadblock. We still think Street expectations are at the lower end of the $200-400 million peak sales guidance. Management’s message remains unchanged in keeping expectations modest guiding to a H1/2013 launch.
Our $29 target is based equally on P/E and EV/EBITDA backed up by DCF,
though we think SOTP is the more interesting metric with (1) $4 per share in cash
–(Marketwire -May 31, 2012) -New Zealand Energy Corp. (TSX VENTURE:NZ)(OTCQX:NZERF) (“NZEC” or the “Company”) is pleased to announce that it has entered into a binding agreement (the “Origin Agreement”) withOrigin Energy Resources NZ (TAWN) Limited, a wholly-owned subsidiary ofOrigin Energy Limited (ASX:ORG) (collectively “Origin”) to acquire upstream and midstream assets (the “Acquisition”). These assets include four Petroleum Mining Licenses totaling 26,907 acres in the mainTaranaki Basin production fairway (the “Petroleum Licenses”) as well as theWaihapa Production Stationand associated gathering and sales infrastructure.
NZEC is also pleased to announce new oil discoveries in its Copper Moki-3 (“CM-3”) and Copper Moki-4 (“CM-4”) wells, with the expectation of initiating continuous production from CM-3 toward the end of Q2-2012. Continuous production from the Copper Moki-1 well (“CM-1”) along with the 16-day flow test from the Copper Moki-2 well (“CM-2”) generated positive cash flow of$4.5 millionduring Q1-2012 based on a realized netback averaging approximatelyUS$90per barrel of oil sold.
Four Petroleum Licenses in key production fairway provide significant exploration and production potential
Petroleum Licenses are permitted until 2016 and renewable without relinquishment thereafter
93 km2 of 3D seismic data with coverage over approximately 50% of the Petroleum Licenses and 585 km of 2D seismic data
Well log data from 27 wells, a number of which demonstrate multi-zone potential in NZEC’s target formations: Urenui, Mt. Messenger, Moki and Kapuni
16 established drill pads, most with existing oil and gas production infrastructure
Uphole completion opportunities in existing wells for Urenui, Mt. Messenger and Moki formations
Significant expansion to NZEC’s drilling inventory
Waihapa Production Stationprovides full spectrum midstream processing
Provides direct access to markets for NZEC production through oil and gas sales pipelines
Gathering capacity in place to service NZEC’s oil and gas production
Includes facilities for gas processing, liquefied petroleum gas (“LPG”) recovery, oil processing and water disposal with associated gathering and oil and gas sales pipelines
NZEC will own the only open-access midstream production facility in theTaranaki Basin, providing cash flow potential through agreements with third-party producers
Copper Moki Oil Discoveries
CM-3 confirms third consecutive Mt. Messenger discovery, yielding 510 barrels of oil per day (“bbl/d”) and 320 thousand cubic feet of natural gas per day1 (“mcf/d”)
CM-3 confirmed reservoir potential in the Moki formation
CM-4 oil discovery in the Urenui formation, production test underway
1 Natural gas and associated natural gas liquids are currently being flared until the Company completes a pipeline to theWaihapa Production Station, with the pipeline on schedule for tie-in by the end of Q2-2012.
First Quarter Financial Results
54,677 bbl produced and 49,486 bbl sold, representing a 170% and 172% increase over Q4-2011, respectively
Generated positive cash flow of$4.5 millionfrom production, resulting from netbacks of approximatelyUS$90/bbl
Reduced production costs by approximately 5% to$22.25/bbl from$23.44/bbl in Q4-2011
Closed a$63.5 millionbought deal financing inMarch 2012in which 21.2 million shares were issued at$3.00per share
Strong balance sheet with$70.4 millionof working capital as atMarch 31, 2012
“With 170,649 acres of Petroleum Exploration Permits and 26,907 acres of Petroleum Licenses, NZEC will control a significant portion of the exploration fairway in theTaranaki Basin,” saidBruce McIntyre, President and Director of NZEC. “We believe that the Petroleum Licenses are highly prospective across multiple formations, offering exploration, uphole completion and production potential from existing wells and the ability to rapidly drill new wells. Along with the prospects on our existing permits, NZEC’s technical team has identified a number of Urenui, Mt. Messenger and Moki leads on the Petroleum Licenses, significantly increasing NZEC’s drilling inventory in theTaranaki Basin.”
“These acquisitions increase NZEC’s presence inNew Zealandfrom both an exploration and infrastructure perspective,” said John Proust, Chief Executive Officer and Director of NZEC. “Controlling a central oil and gas production facility in theTaranaki Basinprovides NZEC with the strategic opportunity and capacity to independently process production, at reduced operating costs, as well as generate cash flow through third-party processing agreements. This transaction is consistent with NZEC’s business strategy of adding value for shareholders through acquisition and development.”
The purchase price for the Acquisition comprisesCDN$42 millionin cash (plus adjustments) and a 5% gross overriding royalty on the Petroleum Licenses, payable to Origin. The Company will be using funds previously allocated for acquisitions, working capital on hand and cash flow from production to complete the Acquisition. With a current cash position of$61 million, post-acquisition NZEC will remain fully funded to complete its previously announced 2012 capital program and reiterates its forecasted exit rate of 3,000 barrels of oil equivalent per day (“boe/d”).
Closing of the Acquisition is targeted forOctober 2012and contingent on receiving government approvals, Origin completing the current recommissioning of the TAWN LPG extraction facility, Origin and/or NZEC entering into an agreement withContact Energy(“Contact”) regarding the use and development of Origin’s Ahuroa gas storage facility, and standard TSX Venture Exchange approvals.
BHP Billiton Ltd.‘s (BHP-N61.56-2.46-3.84%) move to reconsider major spending plans may delay the construction of a promised potash mine in Saskatchewan, another sign the commodity “supercycle” is gearing down as slower global growth cools demand.
The Jansen project, estimated to cost as much as $12-billion, has the potential to become the largest potash mine in the world and is one of three major projects BHP was slated to consider for approval later this year. But comments by the global mining giant’s chief executive officer, Marius Kloppers, suggest the company could postpone such developments.
“You should not expect in the next six months any new major approval of projects,” Mr. Kloppers said in an interview with Caixin Media Co.
“The economics of some of these projects has changed,” he said. “I think for the next two years, 18 months perhaps, we will just wait and see how things develop.”
Resource companies around the world have become nervous as growth in China and India cools, easing global demand for commodities. The mining industry has enjoyed an extended stretch of high prices, but this so-called supercycle has escalated capital costs and prompted some governments to raise royalty rates in an effort to cash in on the boom. Now that supplies are more closely aligned with demand and costs remain hot, megaprojects may be losing their allure.
A delay at Jansen is a “reasonable possibility,” said Joel Jackson, an analyst at BMO Nesbitt Burns. But BHP must also be mindful of its relationships in Saskatchewan, he noted.
The Jansen project played a key role in BHP’s attempt to acquire Potash Corp. of Saskatchewan Inc. (POT-T40.63-0.35-0.85%) for $38.6-billion (U.S.) in 2010 in a hostile bid. The takeover was blocked by the federal government, which had sought guarantees from BHP that it would proceed with the Jansen development. But BHP, needing to carry out due diligence, was not in a position to give such assurances.
BHP may still issue a go-ahead for Jansen by year-end, but current trends in the potash market serve as a headwind.
Shares of Potash Corp. have tumbled amid uncertain demand from major buyers of the mineral, used in making fertilizer to boost crop output, and Potash Corp. itself has curtailed some production this year.
China consumes about 50 per cent of the world’s steel-making products; 40 per cent of the world’s aluminum and copper; and between 5 and 20 per cent of the world’s uranium, oil, and potash, according to BHP.
Mr. Kloppers’ concern extends to two other major projects: a copper-uranium expansion and an iron-ore expansion project, both in Australia. The three, along with other expansion plans, have an estimated price tag of around $80-billion (U.S.), a pricey sum at today’s commodity prices as the company emphasizes maintaining its dividend and solid credit rating.
Africa Oil reports Q1/12 financial and operating results. Key takeaway: the company and its joint venture partner Tullow Oil aim to increase the pace of exploration in East Africa by sourcing an additional two drilling rigs before the end of 2012. One rig is intended to be mobilized to Block 10A (Kenya) and to commence drilling the Pai-Pai prospect and an additional rig is intended to be mobilized to the South Omo Block (Ethiopia) to commence drilling an oil exploration well. This will bring the total number of rigs operating on the company’s East African acreage to four prior to the end of 2012.
“ Ahead Of Itself ? “
In addition, the company plans to continue aggressively acquiring 2D seismic data focused on Blocks 10BA, 10BB, 13T, South Omo and 12A. Canaccord initiated coverage on AOI on Tuesday. Amongst the Canada listed international oil companies, Cannacord believes AOI provides one of the best risk-reward opportunities currently in the market.and says the question asked most often: “Is it too late to invest in AOI?”
At the current share price the stock is ahead of its entire 2012 drilling results; therefore, in effect, a potential investor is pre-paying for nearly 480 million barrels of net discoveries (960 million barrels gross). However on its first well (Ngamia-1), original estimates were only 45 million barrels, and have likely been far exceeded. This suggests the entire 5 billion barrel net resource estimate may be conservative. Successful flow testing on Ngamia-1 may open up a “string of pearls” of look-a-like geological anomalies that could exceed the 2.5 billion barrels discovered in Uganda. Brown adds there is an upcoming resource report that will likely take the share price to a new level. The addition of new rigs in Kenya in H2/12 would likely have a similar effect.
In the next four to six weeks, shareholders should have test results from multiple zones at Ngamia-1 in Kenya.
The second-largest U.S. natural-gas producer said it may face a cash shortfall as early as next year after prices for natural gas, which accounts for 83 percent of its reserves, reached a 10-year low last month. While a buyer would have to cope with seven joint ventures and $13.1 billion of debt, Exxon Mobil Corp. and Chevron Corp. (CVX) may see a chance to scoop up the largest holder of onshore drilling leases before gas prices rebound, said SunTrust Robinson Humphrey Inc. Royal Dutch Shell Plc (RDSA) may also be interested, said Huntington Asset Advisors Inc.
“For any of the major integrated oil companies that want to pick up reserves on the cheap, this would be a good one,” saidPeter Sorrentino, who helps oversee $14.7 billion at Huntington in Cincinnati. Chesapeake and other gas producers will be “worth a whole lot more than they are today. We’ll look back on this and say, ‘Wow, this was really an opportunity.’ There may be some people that end up kicking themselves.”
Chesapeake “had a bit of a drama around it,” he said. “But that doesn’t change the fact that these are very desirable assets.”
Michael Kehs, a spokesman for Oklahoma City-based Chesapeake, declined to comment on whether the company is for sale, may be for sale or has been in talks with potential buyers of the whole company.
Kimberly Brasington, a spokeswoman for Irving, Texas-based Exxon (XOM), and Russell Johnson, a spokesman for San Ramon, California-based Chevron, declined to comment on potential acquisitions. Jonathan French, a spokesman for Shell in London, declined to comment
on whether The Hague-based company has considered an acquisition of Chesapeake.
“We are happy with the portfolio we have acquired and built organically in North America over the past years, but we are always looking at opportunities worldwide,” French said, when asked if Shell is looking to add resources on the continent.
McClendon, 52, co-founded Chesapeake in 1989 and built it into the second-largest U.S. natural-gas producer behind Exxon by embracing techniques such as horizontal drilling and hydraulic fracturing that revived U.S. oil and natural-gas production. The company has outspentcash flow in 19 of the past 21 years as it amassed a portfolio of gas and oil fields.
McClendon, who was allowed to take a 2.5 percent stake in almost every well the company drilled and was required to pay development costs proportionate to his stake, had amassed $846 million in loans as of Dec. 31 to cover his share of the costs. The board announced May 1 that it will strip McClendon of his chairmanship as it reviews his personal loans. The Internal Revenue Service and Securities and Exchange Commission are also investigating.
The decline in gas prices, coupled with McClendon’s personal-loan entanglements, led to a 47 percent drop in Chesapeake’s shares in the last 12 months through yesterday. Natural gas, the fuel for heating and power plants, fell to a 10-year low of $1.902 per million British thermal units on April 19 because of a glut of production from new wells in shale formations from Texas to Pennsylvania.
On May 1, the company posted an unexpected $71 million first-quarter loss and warned it may run short of cash next year without enough divestitures. Chesapeake increased planned asset
sales through the end of 2013 by 17 percent to $20.5 billion.
“The knee jerk reaction is the stock is down so much, it’s a real opportunity, but unless they’re able to sell these assets and get good prices for these assets, the debt burden is choking them,” Tim Ghriskey, who oversees about $2 billion as chief investment officer of Solaris Group in Bedford Hills, New York, said in a phone interview. “This has always been a bit of a higher risk name.”
Shares of Chesapeake fell 2.5 percent to $15.94 at 10:03 a.m. after Reuters, citing people familiar with the matter, reported that the company will meet with many of its lenders later this week as it tries to raise cash to close a $9 billion to $10 billion funding shortfall.
Chesapeake’s depressed valuation may still be enough to entice a buyer, said Neal Dingmann, a Houston-based analyst at SunTrust.
Chesapeake’s enterprise value, which is the sum of its equity, net debt, minority interest and preferred equity, was almost $29 billion yesterday, 9.2 times the value of its proved reserves. That’s the cheapest among U.S. oil explorers and producers and integrated oil companies with market values higher than $5 billion, data compiled by Bloomberg show. The industry is valued at a median of about 15.5 times. Chesapeake held proved reserves equivalent to 3.13 billionbarrels of oil at the end of 2011.
“There are a lot of people that talk about Chesapeake and say it’s too convoluted and too complicated to have somebody buy it out,” Dingmann said in a phone interview. “But if assets are cheap enough, buyers are going to find a way to get through all these issues.”