In a May 7 research note on Blackbird Energy Inc. (BBI:TSX.V), Pareto Securities analyst Tom Erik Kristiansen wrote that "Blackbird is too cheap to ignore" and "the recent oil price appreciation has yet to be reflected in the pricing of the company."
Of major significance, Pareto reported, is the company has shifted from an exploration entity to "having a development-ready land base" and "production growth." This is evidenced by all 16 of the drilled wells on its property having been in line or exceeded expectations and having "derisked the value of around 85% of its 115 net sections in Montney." Whereas Blackbird's current production capacity is about 2,000 barrels of oil equivalent per day, it expects to boost that to about 7,000 by mid-2019 once it secures additional offtake capacity.
To fund this growth, Blackbird will, according to the report, have a modest need funding of CA$40–80 million (CA$40–80M) that the company plans to obtain via a nondilutive method, perhaps an industry transaction, debt and/or deferred payments. Following the investment, Blackbird "can recycle cash flow to fund further growth as payback on new wells."
Further, the analyst purported that Blackbird is an attractive partner or takeout target, particularly because its liquid rates and netbacks equal those of Seven Generations and NuVista, its most liquids-rich peers in the Montney. For instance, Blackbird produced 57% liquids and delivered a netback of $28 per barrel in the last quarter. Other factors supporting a potential takeout of Blackbird are its having finished its delineation campaign, it seeing significant interest in its acreage and the oil price having increased, the analyst added. Further, mergers and acquisitions totaling more than $6 billion have taken place in the area in recent years, in which the buyers sought sizable, drill-proven land packages.
Peers are priced at four times higher than Blackbird is, at CA$10M per section versus Blackbird's CA$2.5M per section, Pareto reported. "This highlights a large repricing potential," which could happen when Blackbird obtains nondilutive financing.
Pareto has a Buy recommendation and a CA$1.10 per share price target on Blackbird, whose stock is trading at around CA$0.42 per share and "expect the valuation disconnect to peers to narrow going forward."
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Disclosures from Pareto Securities AS, Blackbird Energy, Research Report, May 7, 2018
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Overview over issuers of financial instruments where Pareto Securities AS have prepared or distributed investment recommendation, where Pareto Securities AS have been lead manager/co-lead manager or have rendered publicly known not immaterial investment banking services over the previous 12 months: Blackbird Energy.
