Energy Co. Has a High Value Level, Analysts Say
Research Report

Echelon Capital Markets analysts Adam Gill and Sohaib Abbas reported they would be initiating coverage on New Stratus Energy Inc. (NSE:TSX.V) in a February 26 research note.

They wrote that they believe the company has a "high-value level," as it had recently released news of its entrance into Venezuela. The analysts stated that this is all a part of the company's original plan of "gaining exposure in Central and South America, working with NOCs (in this case PDVSA) and bringing its technical capabilities and local relationships to help drive value creation in undercapitalized assets."

New Stratus had also previously gained a 50% stake in GoldPiller International Fund SPC Ltd., according to the analysts, who believe this will grant the company "20% exposure to an onshore development opportunity."

The analysts wrote that they believe, in summation, the deal is a good one for New Stratus. "Beyond just getting production revenue, the Company is also going to see procurement revenues for the capital investment required to reactivate the wells, market the crude, and provide PDVSA with a funding facility," the analysts wrote.

"This makes a material impact on netbacks, with expected revenue generated from these additional sources coming in at 60% of revenues in 2024," they continued.

Mitigated Jurisdiction Issues

In the report, the analysts noted that while some investors may be concerned about possible operational jurisdiction issues it most likely will not have a hard impact on the company as a myriad of things would offset these. The first thing to consider is that this would be a reactivation program on wells that have previously been drilled and have produced. The analysts believe this means that there won't be exploration risk involved with this development. 

The analysts also pointed out that New Stratus is continuously expanding its portfolio in Central and South America, so it will become more diversified over time.

There is a question on U.S. sanctions. The United States granted sanctions relief to Venezuela on the condition that the upcoming 2024 presidential elections in Venezuela are free and fair. However, Venezuela's top court recently disqualified opposition candidate María Corina Machado from running. This decision goes against the U.S. requirement for fair elections in order for sanctions relief to continue. As the April deadline for sanctions relief approaches, the U.S. administration may decide to let the relief expire, given that Venezuela is not upholding its end of the bargain. However, the entities GoldPillar and New Stratus are not based in the U.S. or owned by U.S. subsidiaries. Additionally, GoldPillar has marketed Venezuelan crude oil for the past four years without any sanctions-related issues. So, the disqualification of Machado and potential sanctions impacts may not directly affect those two companies, noted the analysts.

Valuation

Overall, the analysts stated that they thought the company was "relatively low risk from a geological perspective, given that production will be driven by a reactivation/work-over program on wells that have already shown production."

They also noted the "attractive risk-reward and the multiple revenue streams that lower the company’s risk profile," leading them to give New Stratus a Buy rating and a CA$1.40 target price.

Important Disclosures:

1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of New Stratus Energy Inc.
2.  This article does not constitute investment advice and is not a solicitation for any investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Each reader is encouraged to consult with his or her personal financial adviser and perform their own comprehensive investment research. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company. 

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ANALYST CERTIFICATION Company: New Stratus Energy Inc. | NSE-TSXV I, Adam Gill, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.

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