Risk (Photo credit: The Fayj)
T-TAO
$3.30 -0.09
Credit Suisse probably said it best
“Deflated Production; Downgrade Rating…We Were Wrong”.
They write:
• We Were Wrong: In our last note dated April 4, 2013, and titled “Production Likely to Exceed 5,000 boe/d”, we believed that production could reach those heights as production at that time was already between 4,000- 4,500 boe/d with only 15 of 27 wells onstream. However, we were wrong, and to a meaningful degree. Current production has declined to roughly 2,700 boe/d (46% oil) with six more wells to bring on production,
primarily due to higher than expected declines on certain higher rate wells. Excluding contribution from new wells that continue to be drilled, the company expects to average roughly 3,000 boe/d for the balance of the year. These results highlight the risk of limited operating
history with TAG’s shallow wells.
• New Estimates: With lower production production, we reduce our production in F2014E and F2015E by 41% and 49%, respectively. We also lower our cash flow forecast in F2014E and F2015E by 58% and 63%, respectively.
Overall, we assume a more modest growth profile from TAG’s shallow well program.
• Higher Risk Profile:
We previously assumed higher growth that placed TAG among few operators offering attractive growth rates at relatively low risk with substantial
upside optionality.
With a tempered mid-term growth outlook from the shallow well program and more meaningful step-change growth more dependent on higher risk deep well exploration, the risk versus reward profile has shifted negatively.
• Recommendation: We downgrade our rating to Neutral from Outperform and lower our TP to C$6.50 (was C$9.50).
TAG is still self-funded and step-change growth potential remains around the corner, but we prefer a greater margin
of safety than the current market price of C$4.92.”
Meanwhile, M Partners cuts their target more modestly/hopefully from $11.00 to $8.00 and I’m sure the long list of
disappointment analysts following the story, will have new numbers out shortly.
