Prairie Provident Resources Inc. (PPR:TSX) completed a three-part recapitalization program, and due to its stronger financial position, Research Capital Corp. upgraded the company to Speculative Buy from Hold, reported analyst Bill Newman in a May 24 research note.
"We believe this is just a big first step of a number of transactions that could unlock considerable value for shareholders," Newman wrote.
Research Capital maintained its target price on Prairie Provident of CA$0.14 per share. Given its current share price is about CA$0.09, the difference between the two forecasts a potential return of 65%.
Details of the Deal
Prairie Provident's recapitalization involved three parts, Newman explained. They were a US$4 million (US$4M) fully subscribed equity financing, the conversion of US$72M of subordinated debt into shares, and the issue of a new CA$5M second lien note. Through the transaction, the company reduced its debt by about half.
Now, it has US$73.6M of net debt, as estimated by Research Capital, and 716,000,000 (716M) basic shares outstanding. Of those, about 75.6% are held by PCEP Canadian Holdco and will be released in thirds on six, 12, and 18-month anniversaries of the transaction. Prairie Provident has 767.6M fully diluted shares, including outstanding options and warrants.
Stronger Financial Position
Newman highlighted that the recapitalization transaction put Prairie Provident in a better financial position such that it may proceed with exploration work without having to restrict expenditures, due to overbearing debt and unfavorable hedges, as before.
The energy firm is "back in business and focused on unlocking significant value," Newman commented.
Now with some financial flexibility, Prairie Provident may pursue low-risk growth by reactivating and recompleting wells, even drilling some of its many prospects, while paying down its debt, wrote Newman. The company may now capitalize on its large reserves base that includes 43 "optimization opportunities that have quick payouts and should help to lower corporate operating costs." Also, it has the freedom, regulatorily speaking, to monetize noncore assets.
Given its Proven Probable reserves of 31,900,000 barrels of oil equivalent and large tax pools of about US$861M, Newman purported, "Prairie Provident could free up more growth capital, through the sale of non-core assets and other transactions, which could be a near-term catalyst for the stock," Newman purported.
Plans for H2/23
What is certain is that Prairie Provident has set a capex budget for this year of US$14M, which mostly applies to H2, relayed Newman.
The company intends to first concentrate on the Princess and Provost areas, both in Alberta, which require little upfront investment and potentially offer a fast payout. Management expects the company will likely drill two wells in the rest of 2023.
Given these plans, Newman noted, potential short-term catalysts are the company's well reactivation and workover program, in June, and its subsequent drill program, in Q4/23.
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Important Disclosures:
1) Prairie Provident Resources Inc. is an affiliate of has a consulting relationship with Streetwise Reports and has paid a consulting fee between US$8,000 and US$20,000.
3) Dores Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor..
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Disclosures for Research Capital Corp., Prairie Provident Resources Inc., May 24, 2034
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