Pinecrest Energy Inc.
PRY : TSX-V : C$2.06 Buy , Target C$5.25
Best netbacks, best growth, beauty balance sheet and an in-line quarter;
Pinecrest reported in-line Q1/12 results, with production averaging 3,358 BOE/d (vs. our 3,325 BOE/d) and fully diluted cash flow of $0.09 (vs. our $0.09 and consensus at $0.09). No material changes to our model were required as a result of the quarterly results.
Neutral. Current production at Pinecrest is stated as 3,500 BOE/d with four wells still cleaning up and excludes two Red Earth wells (including an offset to one of the best producers in the play) that were delayed by wet field conditions (these were on production May 14, 2012). The company considers itself to be one net well behind schedule, though exit guidance of 5,000 to 5,200 BOE/d is unaltered.
Our model previously assumed drilling commencement in July, with first production in September. Management believes that recently dry field conditions lend themselves to operations beginning by the end of May, which if uninterrupted, could add 6 net wells to the 2012 program (with additional rigs).
No changes to guidance have been made at this point, with management preferring to have the summer months in the rear view mirror before doing so.
Our estimated Slave Point curves were previously based on a weighted average of the four types, skewed to Type-3 wells. We are replacing this assumption with a Type 2.5 curve that is in line with results achieved to date, which lowers our production forecasts and risked upside scenarios.
We remain a BUY on Pinecrest with a target price of C$5.25 AMP target remains based on a 6.5x 2013E EV/DACF multiple supplemented by $1.70 (from $1.85) of risked Slave Point upside.
The stock currently trades at a 4.0x 2013E EV/DACF multiple and $86,750 per BOE/d, which compares to its junior peers in our coverage universe at 5.2x and $47,478 per BOE/d.
Pinecrest has the highest netbacks in our coverage universe, the greatest forecast production per share growth and one of the cleanest balance sheets, with a 0.7x net debt to trailing 2012 cash flow ratio. The stock remains an AMP Top Pick in the junior space.