A workover rig. (Photo credit: Wikipedia)

TBE : TSX : C$2.05
BUY 
Target: C$3.10

COMPANY DESCRIPTION:
Twin Butte Energy Ltd. is an intermediate producer focused on heavy oil E&D activity within the Lloydminster fairway of Alberta and Saskatchewan. The company adopted a yield plus modest growth strategy upon closing its acquisition of Emerge Oil & Gas in early 2012.

Investment recommendation

Twin Butte announced its 2012 year-end reserves and an operational update. Its reserve additions and FD&A costs ($24/boe) were in line with
expectations and prior management guidance. From our perspective, the clear takeaway from the release was the workover and performance
update at Primate, where production is up month-over-month to 2,600 boe/d; this should alleviate market concerns over recent production
performance and in our opinion provide a positive tailwind for the stock.
Our NAV estimate drops modestly based on our roll-forward; therefore, we have trimmed our 12-month target price to C$3.10 (from C$3.15)
and maintain a BUY rating on the stock. Our target is based on a 1.0x multiple to NAV and reflects a 2013E EV/DACF multiple of 7.1 times.
Investment highlights
Primate update the key takeaway from the release. Its January 31 update on Primate prompted a massive pullback on the stock; however, the company has announced that production has stabilized at 2,600 bbl/d through February (up from ~2,500 boe/d) given workover efforts,
including installation of five oversized pumps on existing wells (high volume lift). Its operational capabilities are also confirmed by our review
of Frog Lake performance on pages 6 and 7 of our note. Reserve update was in line with expectations. All-in FD&A of $24/boe and a 1.0x recycle ratio were in line. It had 5.3 mmboes of positive extensions (mostly Waseca and Avalon), and it booked 1.6 mm boes at Primate, versus 1.1 mmboes last year with 1.0 mmboes of production.

Valuation
Twin Butte trades at a 0.7x multiple to CNAV, a 5.2x EV/DACF multiple, and $41,200 per BOEPD based on our 2013 estimates, compared to peer
group averages of 0.7x CNAV, 10.6x EV/DACF, and $73,500/BOEPD

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