Impressive growth delivered and set to continue
We expect an impressive half-year 80% increase in 2P reserves to 57.6mmboe, along with a 29% year-on-year increase in quarterly production to 19.9mb/d in Q214, reported by Parex, to fuel cash flow into 2015e. We now look to an increase in expenditure and activity in the second half of the year to continue to create new opportunities for Parex Resources Inc (TO:PXT) in Colombia. Our revised valuation, which accounts for half-year revisions, finds core NAV at C$17.2/share, a significant increase from our previous C$10.0/share and well below current trading levels.
Q214 increases production guidance and 2P reserves
While Parex’s strong Q214 results have come in much inline with expectations, reporting production of 19.9mb/d for the quarter, along with a realised sales price of US$104.5/bblandoperating netbacks of US$61.7/bbl, it has been the half-year 80%increase in 2P reserves, along with Parex’sability to continue to deliver sizeable reserve growth additions through the drill bit, which continues to impress. We point to current upticks in full-year production guidance as well as the potential for further contributionsfrom recent acquisitions, and conclude that both the current reserve additions as well as the potential for further reserve increases,have yet to be fully priced in.
Capex risingas opportunities surface
Recent revisions tocapex guidance for2014eto US$365m can be attributed to an increase indrilling and completion costs due to arisein deeper wells in thecurrent drilling programme. We have revised our models to account for an increase in capex, with our assumptions that apipeline of growth opportunities, which include recently acquired Verano assets, as well as farm-in ventures, will bekey to Parex’s continued growth storyin 2015e, with our opinion that much of this is not currently being priced in.
Valuation: Core NAVrevised significantly higher
In line with the mid-year 80% increase in 2P reserves to 57.6mmboe, we have revised our core NAV to US$1,975m, or C$17.2per share, a 72% increase over our previously published US$1,141m(C$10.0/share). Weremain of the opinion that Parex’s proven track recordand experience in Colombia’s basinspositions the company extremely well,and expectthat current positioning will attract further opportunities in Colombia’s oil and gas patch.
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