In an Oct. 12 research report, analyst Tom Erik Kristiansen with Pareto Securities noted that Blackbird Energy Inc. (BBI:TSX.V) is an ideal takeout candidate, it is the right time in the cycle for mergers and acquisitions (M&A) activity, and such a transaction could help finance the company for project advancement and spark a repricing of its stock.
Kristiansen summarized Blackbird's highlights. It offers a "high-margin, development-ready portfolio" in the liquids-rich Montney Formation, Kristiansen wrote. Drill results to date have exceeded expectations. The company's operational netback last quarter was ahead of its peers, at CA$30 barrels of oil equivalent, which "highlights the attractiveness of its acreage in the current oil price environment."
Blackbird is undervalued and "too cheap to ignore," Kristiansen reiterated. Whereas Blackbird is trading at CA$2 million per section, its peers are trading around CA$12 million/section. This is largely because weak sentiment for oil and gas in Canada is keeping investors out of the sector. Several M&A transactions have occurred as a result, the analyst added, and such a deal makes sense for Blackbird.
Moving forward for Blackbird would entail increasing production to about 7,000 barrels of oil equivalent per day (7 Mboe/d) from the current 1–2 Mboe/d, once it obtained additional offtake capacity. To do so, however, it would need about CA$40–80 million, Kristiansen indicated, "dependent on its participation in midstream infrastructure."
Because Blackbird does not carry debt, much of the funds it would need could be covered by leverage as the company transitions into a developer. That being the case, the analyst noted, it is probable that the market may be "exaggerating" funding risk.
Following investment of that capital, Blackbird could then "recycle cash flow to fund further growth toward the greater than 100 Mboe/d long-term potential of its 114 net sections," added Kristiansen.
Pareto Securities has a Buy rating and a CA$1.10 per share price target on Blackbird, whose stock price is currently around CA$0.34 per share.
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Disclosures from Pareto Securities AS, Blackbird Energy, Update, October 12, 2018
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