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Message: Monteny well could provide trigger...
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Montney well result could provide next potential trigger in early 2013
The quarterly operational and financial update from Questerre did not contain any major news in our view. The oil shale project, in which the company is participating with Total, is targeting first oil in 2014, and focus in the coming months is likely to be on Montney liquids potential in Alberta. We reiterate our BUY recommendation and NOK7 target price.
Red Leaf oil shale project progressing, outcome of new Montney well expected early 2013.
As expected, the quarterly operational and financial update from Questerre did not contain any major news. It is Red Leaf’s oil shale project in Utah, in which the company has a 6% equity stake with partner Total, and the ongoing testing of Montney liquids potential in Alberta that we believe will be key focus points in the coming months. Red Leaf’s oil shale project’s current timeline is to finish construction of a large-scale oil shale mining production capsule in 2013, with first oil targeted for 2014. In Alberta, the results from the two first horizontal Montney wells have been encouraging, with a large liquids portion, and the company spudded a third well early this month, with completion and testing scheduled for early 2013.
Estimate changes.
We have made only minor forecast changes following the quarterly update, with our 2012 and 2013 EPS estimates unchanged at CAD-0.01 and CAD0.01, respectively, while we have lowered our 2014 EPS forecast from CAD0.02 to CAD0.01.
Valuation and recommendation.
We reiterate our BUY recommendation on Questerre and our NOK7 target price, implying 0.6x our NAV estimate. Although the majority of our valuation is attached to assets that are not expected to contribute much newsflow or triggers in the near term, we argue that the current valuation represents meaningful upside potential on a 12-month horizon and beyond. The immature nature of the company’s major assets is expected to be partially mitigated by Questerre’s increased focus on liquids potential in the Montney shale well in Alberta, where it has established a strong acreage position and produced encouraging test results from the first two wells.
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