Acquisitions add fuel to the growth engine
The recently announced Verano acquisition is expected to add 4.0mb/d of production and 3.5mmbbl of 2P reserves upon closing in late June. This acquisition will also increase Parex Resources' (TO:PXT) working interest in Llanos blocks LLA-17, LLA-32 and LLA-34, which have shown upside potential, having recently delivered the Kananaskis-1 (in LLA-32) discovery, and as a group hold a total of five drilled and cased wells currently awaiting testing. Making use of Q214 production guidance along with Verano’s 2P reserves, our revised DCF model arrives at a RENAV of C$12.2/share.
Production growth and hints of more to come
Based on company guidance and reports that the Kananaskis-1 well delivered 3,555b/d of light oil during testing, we have modelled the Verano Energy acquisition to add 4,000b/d to Parex production by Q314. Further to Kananaskis-1, and not included in our forecasts, we are expecting neighbouring drilled and cased wells Calona-1 and Carmentea-1 on block LLA-32, along with wells Tigana-2 & 3 and Tigana Norte-1, on block LLA-34, to conclude testing over the following months, with further upside from these five wells likely.
Acquisition snubs debt and makes use of shares
Financially, the Verano acquisition entails C$76m in cash and C$153m in common shares, increasing Parex’s share count by 14m to c 124m, or by approximately 13%. The transaction is set to close in late June, at which point Parex will assume Verano’s working capital surplus of C$30m, thus lowering Parex’s cash outlay from C$76m to C$46m and reducing acquisition costs to C$198m, leaving Parex’s financial flexibility intact (ie no new debt over our forecast period).
Valuation: RENAV points to C$12.2 per share
Our models find a core NAV of US$1,141m, or C$10.0 per share, in line with our previously published US$1,043m, or C$10.1 per share. The main changes to our core NAV include an increase in 2P reserves from 32mmboe to 36mmboe to account for Verano’s 2013 published 2P reserves, as well as an increase in Parex’s share count, which increases to 124m. Our exploration NAV increases from US$225m to US$250m to account for increased stakes in LLA-34 and LLA-32, to C$2.2 per share, and with this, our RENAV delivers C$12.2 per share, with our expectations that the mid-year independent reserve evaluation could provide upside to our current estimates.
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