Analyst Actions: New Zealand Energy Corp Ests and Target Lowered at Credit Suisse
Credit Suisse on "Watery Well Results at Arakamu-2; Lowering Estimates and Target Price to C$0.25 (from C$0.30)."
High Water Cut at Arakamu-2: Well results at Arakamu-2 were somewhat disappointing thus far, with total swab volumes of 407 barrels of 42ÃâÃÂ° API oil since mid-March 2013 (roughly equivalent to 30 bbls/d). Additionally, the water cut was approximately 80% over the last few days of swabbing operations, although the company notes that the oil cut was increasing. The well is currently shut-in and NZEC expects to equip this well for long term production. Equipment is expected to arrive in roughly a one month timeframe.
New Estimates: Incorporating the well results, we lower our production in 2013E and 2014E by 20% and 25%, respectively. Our cash flow forecast was reduced by 21% in 2013E and 30% in 2014E. We are also lowering our 2013E and 2014E EPS estimates to C$0.02 and C$0.00 from C$0.03 and C$0.02.
Catalysts: The next well result will likely be Wairere-1A and could be announced on April 25, 2013 in conjunction with NZEC's year end results. At a higher level, the largest impediment to the company proceeding with its business plan is the Waihapa acquisition, which is anticipated to close in Q2/13 and could prove to be a catalyst. Furthermore, shoring up the funding position would also likely be viewed positively by the market.
Recommendation: We currently maintain our Underperform rating and lower our target price to C$0.25 (was C$0.30). Although we believe New Zealand is an attractive destination for oil and gas investment, there remain significant company specific concerns that impede us from recommending the stock at this time, including a relatively weak financial position and general uncertainty in the capital program ahead of the Waihapa acquisition concluding.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
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