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Undervalued, Montney Oil E&P 'Too Cheap to Ignore,' Says Analyst
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Analyst Tom Erik Kristiansen with Pareto Securities made the case for investing in this energy company.

Blackbird drilling site

In a May 7 research note on Blackbird Energy Inc. (BBI:TSX.V), Pareto Securities analyst Tom Erik Kristiansen wrote that "Blackbird is too cheap to ignore" and "the recent oil price appreciation has yet to be reflected in the pricing of the company."

Of major significance, Pareto reported, is the company has shifted from an exploration entity to "having a development-ready land base" and "production growth." This is evidenced by all 16 of the drilled wells on its property having been in line or exceeded expectations and having "derisked the value of around 85% of its 115 net sections in Montney." Whereas Blackbird's current production capacity is about 2,000 barrels of oil equivalent per day, it expects to boost that to about 7,000 by mid-2019 once it secures additional offtake capacity.

To fund this growth, Blackbird will, according to the report, have a modest need funding of CA$40–80 million (CA$40–80M) that the company plans to obtain via a nondilutive method, perhaps an industry transaction, debt and/or deferred payments. Following the investment, Blackbird "can recycle cash flow to fund further growth as payback on new wells."

Further, the analyst purported that Blackbird is an attractive partner or takeout target, particularly because its liquid rates and netbacks equal those of Seven Generations and NuVista, its most liquids-rich peers in the Montney. For instance, Blackbird produced 57% liquids and delivered a netback of $28 per barrel in the last quarter. Other factors supporting a potential takeout of Blackbird are its having finished its delineation campaign, it seeing significant interest in its acreage and the oil price having increased, the analyst added. Further, mergers and acquisitions totaling more than $6 billion have taken place in the area in recent years, in which the buyers sought sizable, drill-proven land packages.

Peers are priced at four times higher than Blackbird is, at CA$10M per section versus Blackbird's CA$2.5M per section, Pareto reported. "This highlights a large repricing potential," which could happen when Blackbird obtains nondilutive financing.

Pareto has a Buy recommendation and a CA$1.10 per share price target on Blackbird, whose stock is trading at around CA$0.42 per share and "expect the valuation disconnect to peers to narrow going forward."

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1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
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Disclosures from Pareto Securities AS, Blackbird Energy, Research Report, May 7, 2018

This publication or report has been prepared solely by Pareto Securities Research. Opinions or suggestions from Pareto Securities Research may deviate from recommendations or opinions presented by other departments or companies in the Pareto Securities Group. The reason may typically be the result of differing time horizons, methodologies, contexts or other factors.

Conflicts of interest

Companies in the Pareto Securities Group, affiliates or staff of companies in the Pareto Securities Group, may perform services for, solicit business from, make a market in, hold long or short positions in, or otherwise be interested in the investments (including derivatives) of any company mentioned in the publication or report.

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This material has been prepared following the Pareto Securities Conflict of Interest Policy. The guidelines in the policy include rules and measures aimed at achieving a sufficient degree of independence between various departments, business areas and sub-business areas within the Pareto Securities Group in order to, as far as possible, avoid conflicts of interest from arising between such departments, business areas and sub-business areas as well as their customers. One purpose of such measures is to restrict the flow of information between certain business areas and sub-business areas within the Pareto Securities Group, where conflicts of interest may arise and to safeguard the impartialness of the employees. For example, the Corporate Finance departments and certain other departments included in the Pareto Securities Group are surrounded by arrangements, so-called Chinese Walls, to restrict the flows of sensitive information from such departments. The internal guidelines also include, without limitation, rules aimed at securing the impartialness of, e.g., analysts working in the Pareto Securities Research departments, restrictions with regard to the remuneration paid to such analysts, requirements with respect to the independence of analysts from other departments within the Pareto Securities Group rules concerning contacts with covered companies and rules concerning personal account trading carried out by analysts.

Pareto Securities AS may hold financial instruments in companies where a recommendation has been produced or distributed by Pareto Securities AS in connection with rendering investment services, including Market Making.

Overview over issuers of financial instruments where Pareto Securities AS have prepared or distributed investment recommendation, where Pareto Securities AS have been lead manager/co-lead manager or have rendered publicly known not immaterial investment banking services over the previous 12 months: Blackbird Energy.

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