In a May 6 research note, Haywood analyst Christopher Jones reported that TORC Oil & Gas Ltd. (TOG:TSX) had a "sound" Q2 FY20 and made strategic moves in response to oil price uncertainty. The company is "well positioned to ride out the current tumultuous oil price environment," he added.
Jones reviewed the energy company's results in Q2 FY20, noting that production and cash flow were in line with estimates. Production totaled 28,515 barrels of oil equivalent per day (28,525 boe/d), compared to Haywood and the Street's forecasts of 28,500 boe/d and 28,400 boe/d, respectively. Capex also was as expected, at $65 million.
Cash flow per share amounted to $0.21, which was one cent above projections. The company's hedge book on March 31, 2020, had an unrealized gain of $7.1 million at current strip.
During the quarter, TORC was hit with a total impairment charge of $853 million, as were many of its peers. Broken down, $704 million was for its Saskatchewan business, $132 for its Cardium business and $17 for its Monarch business.
At the end of Q2 FY20, TORC's net debt was $382.7 million with $190.7 million available on the $500 million line.
In his report, Jones presented the changes TORC made to support liquidity in an ongoing uncertain market and commented, "These actions are logical in today's environment and should not shock investors."
The oil and gas entity decreased its planned capex spend to $75 million from $190 million. It shut in 4,000 boe/d of production with a potential increase of that. It suspended the monthly dividend and reduced costs where possible, including salaries.
"We believe TORC needs a West Texas Intermediate oil price of about US$25 per barrel to cover its cash costs and more than US$35 a barrel to reinstate the dividend and resume drilling," wrote Jones.
Haywood has a Buy rating and a CA$1.75 per share target price on TORC Oil & Gas. The stock is trading now at around CA$1.05 per share.
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Disclosures from Haywood Securities, TORC Oil & Gas Ltd., May 6, 2020
Analyst Certification: I, Christopher Jones, hereby certify that the views expressed in this report (which includes the rating assigned to the issuer’s shares as well as the analytical substance and tone of the report) accurately reflect my/our personal views about the subject securities and the issuer. No part of my/our compensation was, is, or will be directly or indirectly related to the specific recommendations.
Important Disclosures
Other material conflict of interest of the research analyst of which the research analyst or Haywood Securities Inc. knows or has reason to know at the time of publication or at the time of public appearance: n/a.
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