TriOil – New Presentation – Target $6.75

Cardium asiaticum

Cardium asiaticum (Photo credit: Vishal Bhave)

TriOil Resources Ltd.

June 11 2012

TOL : TSX-V : C$2.15  Buy , Target C$6.75

Dunvegan does vary, estimates remain intact; reiterate BUY and C$6.75 target

price

Event

TriOil has updated its corporate presentation including recent results from its Dunvegan and Cardium drilling program. Three recent Dunvegan wells tested at low rates of 50 BOE/d, 115 BOE/d and 225 BOE/d, though each well has a management explanation

Well #5 (tested at 50 BOE/d, 50% w.i.) was drilled into four metres of Dunvegan pay and experienced emulsion issues during flow back. Although still underperforming, production has recently increased to 113 BOE/d.

Well #6 – tested at 225 BOE/d (25% w.i.) – was adjacent to a very successful prior effort (test rate of 1,178 BOE/d) but was drilled by a different directional drilling company than the offset. Problems were encountered in the build section and a damaged liner led to an ineffective stimulation. The #9 well (tested at 115 BOE/d, 48.7% w.i.) was drilled into a thinner, two-metre pay package – prior high rate wells were drilled into 10 metres of pay thick area – with the lateral getting out of zone for a third of the well, while another damaged liner saw only six fracs successful. Production on this well has subsequently increased to 140 BOE/d.

Statistically the play will continue to have outliers on both sides of the bell curve as play thickness varies from two to twelve meters and as mechanical issues are encountered and dealt with.

 We remain comfortable with what we consider to be a conservative outlook given the stellar average rates reported to date (inclusive of these recent test rates

We have yet to ascribe risked Dunvegan upside in our target price.

Impact

Neutral. Although the latest results are below prior efforts, we expect variability in any new play. Using IP30 rates as a percentage of test rates, on average the play is performing above our expectations. We have left our estimates unchanged and continue to highlight TriOil as one of the most catalyst-rich in our coverage universe.

Recommendation

 BUUY  TriOil  C$6.75 Ttarget price  based on a 5.5x 2013E EV/DACF multiple supplemented by $0.61 in risked Cardium upside.

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