Prairie Provident Resources Inc. (PPR:TSX) ended last year with a substantial increase of its oil reserves, according to a February 1 research report by analyst Bill Newman.
Prairie Provident enjoyed a 64% increase in its proven plus probable reserves and a boost of 56% and 29% in its other two types of oil reserves. Now, the Canadian company is trading at a small fraction of the value of its increased reserves, Newman explained.
These increases were, mainly, the result of three factors, he noted. The first was the acquisition of fellow Canadian oil company Marquee Energy Ltd. The second was the successful exploration of Prairie Provident's assets at Princess, in southern Alberta. The third was the additions from the firm's waterflood program at Evi, in northern Alberta.
Newman reiterated his previous buy recommendation and a target price of $1 per share.
His report explained that an independent petroleum engineering firm, Sproule Associated Ltd., completed an update of Prairie Provident's reserves as of Dec. 31, 2018. The evaluation showed that the company's proved developed producing (PDP) reserves increased by 29% to 11 million barrel of oil equivalent (MMboe) when compared to the end of 2017. It also showed that its proven (1P) reserves increased by 56% to 22.4 MMboe from December 2017 to December 2018. Proven plus probable (2P) reserves increased by 64% to 33.9 MMboe during the same period, added the report.
Prairie Provident had, at the time of the report, a production of approximately 6,300 to 6,400 boe per day, an increase when compared to the company's production during last year's fourth quarter, which amounted, according to Newman, to 5,937 boe per day. The production was expected to further rise to 7,000 boe per day during this year's first quarter, Newman said.
On the other hand, the analyst explained the estimated pre-tax discounted value (NPV-10) of Prairie Provident's PDP reserves amounted $175 million. That value equals 83% of the current corporate enterprise value (EV) and was below the peer group average of 136% for that type of reserves, explained Newman.
The value of 1P and 2P reserves showed a similar pattern. Prairie Provident's 1P reserves had an estimated NPV-10 of $301.4 million, which equals 48% of the EV and was below the peer group average of 75%. And the 2P reserves had an estimated NPV-10 of $495 million, which equals 29% of the EV and was below the peer group average of 48% for that type of reserves, explained the report.
"At the current market price, PPR trades at substantial discount to its reserves," noted Newman.
He also commented that, with the completion of its Marquee acquisition, Prairie Provident became "a much larger undervalued company with a larger cash flow and opportunity base. . .The expanded assets base provides PPR more flexibility to allocate capital to projects with the highest potential return."[NLINSERT]
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Disclosures from Mackie Research, Prairie Provident Resources Inc., Update, February 1, 2019
RELEVANT DISCLOSURES APPLICABLE TO COMPANIES UNDER COVERAGE
Relevant disclosures required under Rule 3400 applicable to companies under coverage discussed in this research report are available on our web site at www.mackieresearch.com.
Each analyst of Mackie Research Capital Corporation whose name appears in this report hereby certifies that (i) the recommendations and opinions expressed in this research report accurately reflect the analyst's personal views and (ii) no part of the research analyst's compensation was or will be directly or indirectly related to the specific conclusions or recommendations expressed in this research report.
Mackie Research Capital Corporation, its directors, officers and other employees may, from time to time, have positions in the securities mentioned herein.
Bill Newman: I, or members of my immediate household or family, own shares of the following companies mentioned in this article: None. Within the last two years, Mackie Research Capital has managed or comanaged an offering of securities for, and received compensation for investment banking and related services from Prairie Provident Resources Inc. Bill Newman has research coverage on Prairie Provident Resources Inc.