In a March 28, 2019 research note, Mackie Research Capital Corp. analyst Bill Newman reported that Prairie Provident Resources Inc. (PPR:TSX) is "trading as one of the cheapest [stocks] in the energy sector," currently around CA$0.165 per share. In comparison, Mackie's target price on the company is CA$0.70 per share, recently down from CA$1 after Prairie's Q4/18 financial and operational results came in below its estimates.
Mackie recapped the key numbers from Q4/18. Production averaged 5,937 barrels of oil equivalent per day (5,937 boe/d), which consisted of 71% oil and liquids. As for 2019 production, management again guided to 6,100–6,500 boe/d, with a 69% oil and liquids make-up, and a year-end target of 6,650 boe/d.
Regarding Q4/18 cash flow, Mackie forecasted $1 million on a realized oil price of $42.44 per barrel of oil equivalent ($42.44/boe), but it came significantly under that at -$5.3 million on a much lower realized oil price of $30.47/boe.
Three factors contributed to the miss, Mackie explained. One was the growing increase in the differential between the West Texas Intermediate (WTI) crude oil price and the Western Canada Select (WCS) price, which hit an all-time high of US$50 a barrel in October. The second was the big drop in the WTI-WCS discount due to the Alberta government temporarily cutting production. The third was the inclusion of decommissioning liability settlements in the quarter's accounting, resulting in a cash flow reduction of $0.7 million.
Mackie highlighted that going forward, however, Prairie Provident's cash flow picture looks more favorable. The company has developed a "modest" capital budget for 2019 of $14.2 million, all of which cash flow will fund. "Despite the limited spend," Mackie wrote, "we expect production in 2019 to average about 6,250 boe/d and generate cash flow of $16.9 million."
Also positive is that Prairie Provident increased its reserves during 2018, according to an independent report. Proven Developed Producing reserves went up 29% to 11 million barrels of oil equivalent (11 MMboe), and Proven reserves grew 56% to 22.4 MMboe. Proven and Probable reserves increased 64% to 33.9 MMboe, about 74% of which are higher-valued oil and liquids.
Mackie maintained its Buy rating on Prairie Provident based on its "long-term growth potential from its large inventory of development oil locations and expanding waterflood programs."[NLINSERT]
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Disclosures from Mackie Research, Prairie Provident Resources Inc., March 28, 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.