Twin Butte Energy Ltd.

Official seal of Lloydminster

Official seal of Lloydminster (Photo credit: Wikipedia)

TBE : TSX : C$2.12
BUY 
Target: C$3.20

COMPANY DESCRIPTION:
Twin Butte Energy Ltd. is an intermediate producer focused on heavy oil development along 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 released first quarter results largely in line with its guidance and CG/consensus estimates. Despite headwinds from wide heavy oil differentials, strong condensate prices that factor in its blending costs, adverse weather, and isolated production challenges at Primate, Twin Butte maintained a payout ratio below 100% with average production down only 1.6% QoQ. We have maintained our BUY rating on the stock and target price of C$3.20, based on a 1.0x multiple to NAV and reflecting a 2013 EV/DACF multiple of 6.8 times.
Investment highlights
Q1 in line, no surprises. Production averaged 17,254 boe/d, in line with our estimate of 17,326 boe/d and consensus of 17,190 boe/d. CFPS of $0.13 was also in line with our $0.13 and consensus of $0.12.
Prudently scaled back CAPEX in January but narrowing differentials could enable re-acceleration in H2/13. Capital spending was previously scaled to $85 million (from $110 million) given isolated issues at Primate and widening heavy oil differentials. Given an improved differential outlook, we see potential for a H2/13 CAPEX increase of $5 to $10 million.
Payout ratio remains best in class; current dividend is solid. Twin Butte maintains one of the lowest total payout ratios amongst the high yield Intermediate E&P group with a total payout ratio pre/post DRIP of 100/95% on our 2013 estimates.
Valuation
Twin Butte trades at a 0.7x multiple to CNAV, a 5.2x EV/DACF multiple and $41,800 per BOEPD based on our 2013 estimates, compared to peer group averages of 0.7x CNAV, 7.8x EV/DACF and $64,400/BOEPD.

Twin Butte Energy Ltd. Q4

Pipes layed by a horizontal drilling machine

Pipes layed by a horizontal drilling machine (Photo credit: Wikipedia)

TBE : TSX : C$2.32
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.
All amounts in C$ unless otherwise noted.

Investment recommendation


Twin Butte released its 2012 year-end financial results and provided an operational update. Production at Primate continues to be stabilized for
a second month in a row and is currently at 2,700 bbl/d, which should alleviate market concerns over production declines in the area, in our
opinion. The company has not been affected by spring break-up to date and has had a strong start on its 2013 drilling program which includes
90 net wells planned. We have maintained our BUY rating on the stock and target price of C$3.10, which is based on a 1.0x multiple to NAV and reflects a 2013 EV/DACF multiple of 6.8 times.
Investment highlights
Q4/12 results in line. Production in the quarter averaged 17,531 boe/d, in line with our estimate of 17,401 boe/d and consensus of 17,390 boe/d. CFPS of $0.16 was also in line with our forecast of $0.15 and consensus of $0.16.
Active horizontal drilling program.

The company has witnessed encouraging results from its horizontal drilling efforts in Q1/13; as such it is planning approximately one third of its 90 net well program this year to be horizontal, including at least 8 and 10 horizontal wells at Wildmere and Frog Lake, respectively, after break up. It has drilled 22 successful wells to date on its acquired lands from the Avalon and Waseca transactions and continues to pursue an active drilling program there this year as well.
Valuation
Twin Butte trades at a 0.8x multiple to CNAV, a 5.5x EV/DACF multiple and $44,500 per BOEPD based on our 2013 estimates, compared to peer
group averages of 0.9x CNAV, 10.5x EV/DACF and $75,900/BOEPD.

Twin Butte Energy Ltd

A workover rig.

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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