In a Dec. 6 research note, CIBC analyst Jamie Kubik wrote that Paramount Resources Ltd.'s (POU:TSX) disposing of 8,500 barrels of oil equivalent per day (8,500 boe/d) of production will not materially impact the energy company's cash flow in the future. "We view the move favorably," he added.
Paramount sold the assets for a total value of CA$55 million. Metrics of the transaction were "modest," Kubik noted, at 320,000 net acres of mineral rights (CA$172 per acre), 8,500 boe/d production (CA$6,470/boe/d), 15.9 MMboe of Proven reserves (CA$3.46/boe) and 20.1 MMboe of Proven and Probable reserves (CA$2.74 per barrel).
In addition, Paramount's capital plans for the assets were "minimal," Kubik pointed out. Thus, CIBC lowered its estimated 2020 capital spend for the company to CA$550 million from CA$600 million. "With the disposition, Paramount will have less maintenance capital required for assets outside of its Montney acreage moving forward, and management has also pointed to cost savings in its recent drilling efforts," noted Kubik.
Paramount has focused primarily on developing its Montney assets, Karr and Wapiti. Going forward, "further refinement of the portfolio is likely to be viewed favorably, helping enhance the financial and operational torque to the company's flagship properties," Kubik commented.
As for spending in 2020, CIBC expends it to be high to ramp up production at Karr and Wapiti and models the amount at about CA$150 million, Kubik wrote. Proceeds from the asset sale and from the flowthrough financing of CA$37.6 million "provide some added financial cushion" for Paramount as it heads into the new year.
CIBC has a Neutral rating and a CA$7.50 per share target price on Paramount, whose current stock price is about CA$6.63 per share.
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Disclosures from CIBC, Paramount Resources Ltd., Earnings Update, December 6, 2019
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Important Disclosure Footnotes for Paramount Resources Ltd. (POU.TO)
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