Q2/23 results were as expected, the highlight being the close of the XTO Netherlands acquisition, reported Research Capital Corp. analyst Bill Newman in an August 11 research note.
"The highly accretive XTO Netherlands acquisition provides additional cash flow, and the boost in working capital should position Tenaz favorably to pursue further acquisitions through consolidation of its interests in the Netherlands and other assets located in the European and Middle East and North African focus areas," Newman wrote.
As such, Research Capital maintained its CA$6 per share target price on the Canadian oil and gas explorer-producer, currently trading at about CA$2.55, noted Newman. The return to target implies a significant return for investors of 135%.
Tenaz is rated Speculative Buy.
Acquisition is Beneficial
Newman presented the benefits to Tenaz of its XTO Netherlands acquisition. It nearly doubled Tenaz's interest in six producing licenses in the Netherlands and nearly doubled its production there to about 1,250 barrels of oil equivalent per day (1,250 boe/d). Further, Tenaz gained from the deal about CA$46.7 million (CA$46.7M) in working capital and increased its working interest in a midstream company to 21%.
Further, a recently released independent contingent and prospective resources report of Tenaz's new Netherlands assets "showed significant additional upside potential," Newman wrote, "suggesting years of growth potential beyond currently booked reserves."
According to the report, the total best estimate of the contingent resource net to Tenaz is 4,300,000 barrels of oil equivalent (4.3 MMboe), which has an after-tax net present value discounted at 10% of $86M. As for the prospective resource, the total best estimate net to the company is 19.8 MMboe.
Production Over Time
Newman reported that Tenaz's Q2/23 production averaged 1,903 boe/d, below Research Capital's projection of 2,140 boe/d. The miss is attributed primarily to the maintenance of facilities being done in Canada and the Netherlands during the quarter.
Net Q2/23 production in Canada averaged 1,323 barrels per day. In the Netherlands, it averaged 580 boe/d.
The lower-than-expected production, along with a slightly higher general and administrative expense, led to a funds flow miss in Q2/23. It came in at US$3.4M versus Research Capital's US$5.1M estimate.
Despite Tenaz's production underperformance in Q2/23, management reiterated its average production guidance for 2023: 2,200–2,500 boe/d.
In the near term, total production should get a boost, starting in Q4/23, from four new wells in Canada's Leduc-Woodbend oil field. Tenaz already drilled two in Q2/23 and intends to drill the other two in Q3/23.
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- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
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Disclosures for Research Capital Corp., Tenaz Energy Corp., August 11, 2023
Analyst Certification I, Bill Newman, CFA, certify the views expressed in this report were formed by my review of relevant company data and industry investigation, and accurately reflect my opinion about the investment merits of the securities mentioned in the report. I also certify that my compensation is not related to specific recommendations or views expressed in this report. Research Capital Corporation publishes research and investment recommendations for the use of its clients. Information regarding our categories of recommendations, quarterly summaries of the percentage of our recommendations which fall into each category and our policies regarding the release of our research reports is available at www.researchcapital.com or may be requested by contacting the analyst. Each analyst of 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.
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