CanAsia Energy Corp. (CEC:TSX.V) attracted the attention of Research Capital Corp., which initiated coverage on the new Canadian oil and gas exploration and production company with a Speculative Buy rating and a CA$0.50 per share price target, reported analyst Bill Newman in a September 7, 2022 research note. CanAsia is currently trading at about CA$0.26 per share, a substantial discount to its risked contingent resource value.
"At the current market price, we believe CanAsia represents a good buying opportunity," Newman wrote.
"At the current market price, we believe CanAsia represents a good buying opportunity," Newman wrote.
He explained that CanAsia is a recent spinout company of the former Pan Orient Energy Corp.'s non-Thailand assets, which started trading on the TSX Venture Exchange on August 29. In fact, most of CanAsia's management and board is comprised of former Pan Orient team members, including Jeff Chisholm, Marcel Nunes, and Bill Oslund, the spinco's chief executive officer, chief financial officer, and adviser, respectively.
Along with CanAsia being undervalued, its primary asset is another reason to invest in the company because it has large resource potential and considerable upside, Newman highlighted. It is the Sawn Lake heavy oil play in northern Alberta, which the company holds through its 71.8% interest in Andora Energy Corp.
The most recent, independent, risked best estimate of Sawn Lake resources, done in March of this year, is 248,200,000 barrels (284.2 MMbbl), which amounts to 178.2 MMbbl net to CanAsia, Newman indicated. The after-tax net present value discounted at 15% is $165 million ($165M) to Andora, $119M net to CanAsia.
At Sawn Lake, CanAsia plans to restart steam-assisted gravity drainage (SAGD) production, previously proven by Andora to be viable in the Bluesky Formation there, relayed Newman. As for the associated timeline, in Q1/23, CanAsia will start refurbishing the Sawn Lake facility. In Q2/23, the energy firm will restart the existing SAGD well pair, and in late Q4/23, drill a second SAGD well pair.
With these efforts, Sawn Lake production should increase to about 1,235 barrels per day (1,235 bbl/d) in 2024, Newman purported. Research Capital forecasts CanAsia will reach peak production of at least 20,000 bbl/d two years later.
"Given the significant amount of capital invested to date in the SAGD facilities and the relatively small amount of capital needed for the first phase development [about $10M gross] and our strong outlook for oil prices, we believe it's likely that the Sawn Lake development will proceed," added Newman.
The analyst pointed out that CanAsia also "plans to participate in the upcoming Thailand concession offerings, adding a potential new growth avenue for the company." If it is successful, "we believe management has the experience and relationships to repeat on its past success."
The spinco has 49,800,000 outstanding common shares and, as of September 1, 2022, about $7.1M in cash and cash equivalents.
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Disclosures For Research Capital Corp., CanAsia Energy Corp, September 7, 2022
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