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Message: Q4 results preview.
From within my online bank so I can't provide a link...
No major news expected, closing of Red Leaf investment likely in Q1
Questerre is due to report its Q4 2011 results on Friday, 24 February. We forecast EBITDA of CAD2.5m. We do not expect any major news in the report, with the focus going forward on further comments and news flow related to the planned USD25m investment in the oil shale company Red Leaf. We reiterate our BUY recommendation, but have lowered our target price from NOK9 to NOK7 due to a lower valuation of the company’s shale gas asset in Quebec.
We forecast EBITDA of CAD2.5m and net profit of CAD0.7m. We expect a sequential increase in production, driven by the oil assets in Antler, with average quarterly output of 690boepd, compared with 604boepd in Q3.
No significant news expected; closing of proposed investment in Red Leaf to be in focus going forward.
We do not expect the company to announce any major news in conjunction with the quarterly report. Any drilling in Quebec this year seems unlikely, with the companies awaiting further clarity on regulations before proceeding with further fracking and testing of shale gas wells. The key focus going forward will be on the planned USD25m investment in the oil shale company Red Leaf, which is expected to be concluded before the end of the quarter.
Estimates increased on higher production.
On the back of a more positive outlook for production growth from the company’s oil assets in Saskatchewan, we have increased our production estimates for 2012e and 2013e from 762boepd and 690boepd to 890boepd and 900boepd, respectively. We have increased our 2012e EBITDA from CAD5.9m to CAD8.6m and our 2013e EBITDA from CAD8.2m to CAD13.9m.
Valuation and recommendation.
We reiterate our BUY recommendation, but have lowered our target price from NOK9 to NOK7, implying 0.5x our NAV estimate. This is driven by a lower valuation of the company’s shale gas asset in Quebec as a result of weakening gas prices, and a lower probability of commercialisation. We forecast a year-end net cash position of NOK2.5 per share, and value the company’s producing assets at NOK2.4 per share, resulting in what we argue is a very attractive risk/reward profile currently.
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