Seadrill Fear and Loathing – Barron’s

Shares of Seadrill (SDRL) have dropped despite the Europe-listed shares getting an upgrade atSociété Générale today, as the investment bank still sees better opportunities in Noble (NE),Ensco (ESV) and Rowan (RDC).


Société Générale Guillaume Delaby andEdward Muztafago explain why they raised their rating on Seadrill and why they’re still not fans of the offshore driller:

Our previous Sell rating (report link, 28 October), was partly based on the risk of floaters oversupply post 2013, which has now materialized. Assuming a “normal” and “gentle” scenario, we believe that: 1) 2014, 2015 and 2016 consensus might now be a bit too low and, 2) the current $3.92 annual dividend (11% dividend yield) might also be secure. In that context, and even assuming a slightly more grim 2014 (before a pick-up in 2015), our Sell rating is no longer warranted in our view. But in the event of an unexpected harsher scenario of declining oil prices and/or higher interest rates, we find little reassurance at Seadrill whose net debt, according to our forecasts, could rise to $17.5bn by the end of 2015 (237% gearing), a high level even by Seadrill’s own standards.

Delaby and Muztafago explain why Noble, Rowan and Ensco are better bets:

All in all, and while Seadrill is no longer a “Sell” or our “least preferred stock” (now SBM Offshore), we believe that US competitors like Noble, Rowan and Ensco (covered by SG analyst Edward Muztafago out of the US) are much more attractive given: 1) 6-8% expected dividend yields (2015-2016e), 2) above 15% FCF yields and 3) reasonable 35-50% gearing levels. Put another way, they offer only slightly less expected financial rewards for a much lower degree of financial risk in our opinion.

Still, not everyone’s a fan of even those drillers–yesterday Barclays cut its price targets on Rowan and Ensco, among others.

Shares of Seadrill have fallen 0.7% to $34.74 at 10:20 a.m. today, while Noble has dropped 0.8% to $31.03, Rowan has declined 0.9% to $31.30 and Ensco is off 0.5% at $50.39.

Pine Cliff Energy Ltd. BUY

PNE : TSX-V : C$1.42

Target: C$2.25

Pine Cliff Energy Ltd. is a junior oil and gas producer
focused on dry natural gas, with assets in Alberta. Pine
Cliff trades on the TSX Venture under the symbol “PNE”.

All amounts in C$ unless otherwise noted.

Energy — Oil and Gas, Exploration and Production
Investment recommendation
We are initiating coverage of Pine Cliff Energy with a BUY rating and a
C$2.25 target price. PNE has had a great run over the last year,
increasing its share price by ~60%, but in our view, this is just the
beginning. Driven by accretive acquisitions and a rebounding gas price,
we expect this stock to go materially higher over the coming year, as
reflected in our forecast return of 58%. Our valuation is NAV based and
maps to a 2014E EV/DACF of 14.7x.
Why we believe this stock is set to outperform:
 Gas Leverage to the Extreme. Simply the best way to gain
exposure to rising gas prices, in our view, given a production
base that is 95% dry gas with no hedging in place. As
highlighted in Exhibits 1 and 2, PNE is the most levered
company to natural gas prices in our coverage universe, with a
$1 increase in AECO prices driving an increase to estimated
CFPS of ~40% and an increase to NAV of over 40%. In our view,
if you want to own gas, you want to own Pine Cliff.
 Acquisitions to drive performance. PNE has taken a contrarian
approach by purchasing dry gas while others chase oil and
NGLs. The last two significant acquisitions by the company over
the last year have resulted in share price bumps of 46% and
36%, respectively. PNE currently trades at 9.0x 2014E
EV/DACF, but as we walk through in Exhibit 3, if the company
were to buy $100 million in assets at 5x cash flow, this multiple
would be just 6.8x 2015E estimates. Use a 5$ AECO price and
it’s at just 5.4x.
 Our Call? Give this management team your money. George Fink
is well respected as an excellent steward of capital, and for
good reason. Early investors in Bonterra Energy (BNE: TSX: Not
Covered) have been handsomely rewarded over the last 16
years, with a CAGR of 45% since 1998. In addition to the energy
space, Mr. Fink has also had success in mining, where at
Comaplex Minerals he provided investors with a CAGR of 21%
over a 15 yeear period.
Our C$2.25 target price is based in part on our assumption that the
company will be successful in completing $150 million in acquisitions
over the next year and post transaction its multiple will return to the
natural gas peer group average of 9.0x EV/DACF

Emerald Oil BUY

EOX : NYSE : US$6.47
BUY  Target: US$11.00

COMPANY DESCRIPTION: Emerald Oil Inc. is an independent exploration and production company primarily focused on acquiring acreage and developing wells in the Bakken and Three Forks shale oil formations of the Williston Basin in North Dakota and Montana. The company also has acreage in the Sandwash Basin in Colorado and Wyoming, and the Heath Shale oil formation in central Montana.

Investment recommendation EOX has successfully transitioned to an operated drilling program in the Williston Basin (WB). EOX has ~85K net acres (75% operated), a very meaningful position for a company its size. With plenty of liquidity at its disposal, EOX is poised to rapidly grow production in 2014 and beyond. Investment highlights  On the heels of the company’s successful $140M offering of five-year convertible notes, which was upsized from $125M due to strong demand, we are lowering our EPS/CFPS estimates and NAV to account for dilution. The deal was priced at 2% with a 35% conversion premium (conversion price ~$8.78/share), attractive terms in our view. Pro forma liquidity is ~$312M, including the $32.5M over- allotment option, which we assume gets exercised. Proceeds will be used to repay revolver borrowings as well as to help fund the company’s accelerating drilling program, where a third rig will go to work by the end of this month and a fourth later this year. Liquidity should also be enhanced by a significant bump in the $75M borrowing base in the spring redetermination.
Well results in the WB continue to be stellar. EOX has reported 17 operated well results to date, with an average 24-hour rate of 1,626 Boe/d. Those with long enough histories had average 30, 90, 150 and 240 day rates of 767, 574, 535 and 503 Boe/d, respectively. All are solid results, in our view. The company has stated it will be raising its 2014 Q2-Q4 and full year exit rate production guidance in May. As a result of strong well performance, EOX is also raising its Low Rider type curve EUR. Valuation Our $11 price target represents a ~15% discount to a ~$13 NAV. Our previous $12 price target was the same discount to a ~$14 NAV

BlackPearl Resources Inc

PXX : TSX : C$2.64

Target: C$4.00

BlackPearl (PXX : TSX) is a mid-capitalization exploration
and production company focused on large scale resource
plays: primarily conventional and thermal heavy oil and
bitumen opportunities in Canada.

All amounts in C$ unless otherwise noted. Investment recommendation
Closing of its bought deal equity financing. The update reinforced our positive view of the
stock; our conviction on the story has grown given its improved financial
outlook and growth profile. Given an attractive >50% forecast return to

There are five primary reasons we have a high conviction on PXX:
1) The stock clearly fits our team’s positive view on heavy oil
fundamentals given a 98% heavy oil weighting.
2) A best in class management team with a history of value creation (it
sold BlackRock Ventures to Shell in 2006 for $2.4B).
3) An underappreciated growth profile through 2016 (forecast
production up 60% relative to 2014), with a fully financed plan in
place for development of its first thermal growth project at Onion
(without the need for any new term debt).
4) Two high quality thermal projects with its largest project at
Blackrod de-risked given positive pilot performance.
5) An extremely compelling valuation where investors are currently
paying for only its conventional assets and receive 850 million
barrels of thermal upside for free.
We have maintained our BUY rating and target price of C$4.00 based on
an unchanged 1.0x multiple to NAV and a 13.2x 2014E EV/DACF
multiple. The stock trades at 0.7x CNAV, 9.0x EV/DACF, and
$94,200/BOEPD on our 2014 estimates which reduces to 5.4x EV/DACF,
and $61,400/BOEPD on our 2016 estimates with the contribution of
production from Onion Lake Phase 1.


Badger Daylighting Ltd

BAD : TSX : C$33.62 
BUY  Target: C$38.00

COMPANY DESCRIPTION: Badger Daylighting Ltd. is North America’s largest provider of non-destructive excavating services. Badger traditionally works for contractors and facility owners in the utility and petroleum industries. The company has a fleet of 791 hydrovac trucks (Q4/13) in the US and Canada. All amounts in C$ unless otherwise noted.

Investment recommendation

We are reiterating our BUY rating and increasing our one-year target price from C$34.50 to C$38.00 following Q4/13 results and news that the build rate has now officially been increased to five trucks per week (comfortably above our previous forecast). We continue to view Badger as an exceptionally well-run company with a proven track record. Moreover: (1) activity levels remain healthy, with accelerating growth over the last two years; (2) long-term organic growth potential is excellent, particularly in the U.S. (although Canada continues its above- average growth too); (3) the company’s return on capital is well above average; (4) its valuation multiples are justified in the context of all of the above; and (5) it pays an attractive and supportable monthly dividend. We still think modest annual dividend increases are within the realm of possibility, but continue to note that available growth opportunities will likely compete for cash flow.
Valuation Our target price continues to be supported by our DCF model (discount rate of 11%). This equates to an EV/EBITDA multiple of 10.9 times our 2015 adjusted EBITDA estimate. Given Badger’s market leading position, unique business model (sustainable competitive advantage), organic growth potential (long runway) and trailing ROE of 25.7%, we think this multiple is justified

Quicksilver Resources ( KWK) – no respect for the effort

Glenn M. Darden - Chief Executive Officer, President, Director and Member of Equity Awards Committee

Thank you, David. Good morning. Today, Quicksilver reported earnings for the fourth quarter and for the full year 2013. For the fourth quarter of ’13, we had an adjusted net loss of $5 million. The full year reported earnings were positively impacted by the sale of the Barnett properties to Tokyo Gas. And John Regan, our Chief Financial Officer, will give you the financial detail following my remarks.

Quicksilver’s concentration has been on improving the company’s balance sheet and liquidity, and as a result, 2013 was more of a defensive year. On the financial front, we lowered net company debt approximately $300 million to the end of the year. We also refinanced $1.1 billion of company bond debt, which reduced interest expense and extended debt maturities by 2.5 years. We have relied on asset sales to lower debt.


Quicksilver Resources Reports Preliminary 2013 Fourth-Quarter and Full-Year Results

       Fri March 14, 2014   7:00 AM|GlobeNewswire          | About:         KWK

FORT WORTH, Texas, March 14, 2014 (GLOBE NEWSWIRE) — Quicksilver Resources Inc. (KWK) today announced preliminary 2013 fourth-quarter and full-year results.

2013 and Q1 2014 Highlights:

– Raised proceeds and announced sales for total of $596 million

  •   Sold 25% interest in Barnett Asset to TGBR, a subsidiary of Tokyo Gas Co., Ltd., for net proceeds of $464 million
  •   Sold Montana Asset to Synergy Offshore LLC for net proceeds of $42 million
  •   Announced sale of Niobrara Asset along with SWEPI LP to Southwestern Energy Co., which is expected to generate cash proceeds of $90 million

– Refinanced $1.1 billion in debt, extended maturities and reduced weighted average interest rates

– Increased pro forma proved reserves by 20%

– Secured partners on the West Texas Asset and narrowed focus on core Wolfcamp to Pecos County

– Added to the 2014 derivative position; approximately 75% of expected 2014 equivalent production covered with commodity swaps at a weighted average price of $5.08/Mcfe

– Resumed Barnett drilling activity in the third quarter with the goal to rebuild volumes

– Secured amendment to lower gathering rate and defer capital spending requirements in the Horn River Basin

– Secured site for potential LNG exports from CanadaQuicksilver Resources Inc(KWK:NYSE, US)



Above Average
As of 14 Mar 2014 at 3:12 PM EDT.

Quote Details

Open 2.74 P/E Ratio (TTM)
Last Bid/Size 2.62 / 58 EPS (TTM) -2.13
Last Ask/Size 2.63 / 120 Next Earnings 14 Mar 2014
Previous Close 2.77 Beta 2.02
Volume 3,921,026 Last Dividend
Average Volume 3,886,999 Dividend Yield 0.00%
Day High 2.81 Ex-Dividend Date
Day Low 2.53 Shares Outstanding 177.1M
52 Week High 3.67 # of Floating Shares 123.8212M
52 Week Low 1.44 Short Interest as % of Float 25.72%



Fuel Tech


NASDAQ : US$5.69
HOLD  Target: US$6.00


Fuel Tech is a leading company engaged in the development, commercialization, and application of proprietary technologies for air pollution control, utility process optimization and advanced engineering services

Sustainability — Energy & Power Technologies


Investment recommendation

Underlying profitability likely helps keep share price firm here, while we look for improving demand and the intro of new solutions in ’14+. Maintain HOLD, $6.00 target.    Investment highlights  Management’s focus on geographic expansion and product diversification stays firmly intact, supported by a very healthy balance sheet (~$26M net cash). FTEK continues to manage admirably through a difficult domestic environment (2+ years regulatory gridlock, shift towards nat gas generation), as attention turns to a potential Supreme Court decision in the Q3 timeframe.
 Q4 results were lower than expected, as impressive international APC growth could not offset domestic softness (expected to persist into H1/14). FUEL CHEM continues to hold steady, while APC backlog ticks down sequentially (~$26.7M currently, including ~$9.5M remaining on Chilean project). The project pipeline stays encouraging (esp. China), while sales cycles remain long and lumpy.
 Our 2014 estimates go to $113.5M/$0.20 from $119M/$0.25 (including higher taxes), while 2015 is introduced at $119.5M/$0.22. Valuation Our $6 target is based on a 0.9x EV/sales multiple applied to our ‘15 revenue estimate of $119.5M.
Risks Regulatory delay, lengthy utility technology adoption cycles, competition



NYSE : US$13.32
BUY  Target: US$15.00 


Headwaters Incorporated is a provider of innovative construction materials for use in the light building products and heavy construction industries

Sustainability — Energy & Power Technologies PUSHING FOR OUTPERFORMANCE; MAINTAIN BUY, $15 TARGET
Investment recommendation We expect improving construction market trends to help support P&L momentum. With a host of new products entering the builders channel in 2014, we look for improved operating leverage and cash generation.   Investment highlights  Progress on profitability and outperformance vs. the peer group is impressive, as light and heavy construction markets continue to improve off the sharp multi-year bottom. Management’s “midcycle” earnings power model ($195M EBITDA) appears doable to us.
 Management stays picky, as $80M of accretive M+A is likely FTM, while underlying organic benefits (distribution penetration, ash pricing) continue to build. That said, Q2/14 weather was tough, driving us to tweak our model slightly, even with a couple important weeks of selling left. Full analyst day details below.
 Given the weather, we adjust our Q2 rev/EPS estimates while keeping the full year intact at $791M/$0.60.  Valuation We apply a multiple of 10.0x EV/FY2015 EBITDA (F2015E EBITDA $153M) to reach our $15.00 target.
Risks Volatility in residential construction markets, uncertain flyash regulations/demand and a highly leveraged balance sheet

Quicksilver Update from motley fool

Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.

What: Shares of Quicksilver Resources Inc. (NYSE: KWK  )  were slipping today, falling as much as 10% and finishing down 7% after it agreed to sell land to Southwestern Energy.

So what: The oil-and-gas producer said it would sell all of its jointly owned holdings in Northwestern Colorado’s Sand Wash Basin, a total of 312,000 acres, for $180 million, half of which it will keep after dividing the payment with SWEPI LP. CEO Glenn Darden said the sale “enables us to focus our development efforts on the Barnett and Canadian projects as well as our previously announced joint ventures in West Texas, and provides the opportunity to enhance company liquidity.”

Now what: The deal is expected to close on May 1, and Southwestern could begin drilling as early as June. Quicksilver has nearly $2 billion in debt on its balance sheet so a $90 million infusion looks like just a drop in the bucket as far as liquidity is concerned. The market seems to view the sale as a poor deal for Quicksilver as it’s giving up a “liquids-rich resource play” for what seems a relatively insignificant cash sum. We may even similar land sales as management seems to be saying it could benefit from greater liquidity and streamlining operations, not a surprise considering Quicksilver’s been operating at a loss. We should learn more about the sale and the company’s future prospects when it reports earnings next week. Analysts are expecting a loss of $0.03 a share.

Peyto Exploration & Development Corp.

Personal note : my daughters went to college on the money I made tracking Peyto from $ 8 to $30


TSX : C$34.92 
HOLD  Target: C$39.00

 COMPANY DESCRIPTION: Peyto Exploration is a low-cost gas-weighted dividend paying intermediate E&P focused on horizontal drilling in the Deep Basin of Alberta, Canada with highly contiguous land and multi-zone gas potential.
All amounts in C$ unless otherwise noted

Oil and Gas, Exploration and Production GOING LONGER IN 2014 
Investment recommendation

Peyto announced fourth quarter results which were largely in line given pre- announced production and capital expenditures. Its infrastructure remains highly utilized and requires further expansions this year to accommodate growth; Peyto remains poised to do that given ~100 MMcf/d of capacity expansions planned this year. It has noticeably moved to longer lateral horizontals given licenses to date and we see the potential for a 10% improvement in IRR and capital efficiencies from ERH development. Peyto remains one of the highest quality natural gas producers in the Basin and a go-to name for exposure. We maintain our HOLD recommendation and C$39.00 target; however, we will continue to monitor the share price for any improvement in valuation (all other factor being equal).
Investment highlights Envision little change to 2014 budget despite firmer gas prices. Despite higher natural gas prices, we see a low probability of any meaningful increase to its $600 million budget given lead time and infrastructure planning. Additionally, PEY has hedged ~55% of 2014 production at ~C$3.70/Mcf, so it has a relatively modest upside participation.
Going longer in 2014.  Peyto has noticeably shifted its licensing and 2014 well program to extended reach horizontal (ERH) wells. Its average well length in 2013 increased by 7% or 100 meters YoY; we see the potential for a material increase in 2014. It is still early in terms of results and costs for Peyto-operated ERH wells; however, we believe ERH wells could provide a +10% improvement in capital efficiency and +10% uplift in IRR per well, which are not captured in current forecasts.
Valuation Peyto currently trades at a 1.1x multiple to CNAV, 11.3x EV/DACF multiple, and $83,400/BOEPD based on our 2014 estimates, versus peer group averages of 0.8x CNAV, 8.1x EV/DACF, and $77,000/BO


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