Stifel FirstEnergy Morning Research Package

Cardinal Energy (CJ-TSX); BUY, C$3.50 | Cenovus Energy (CVE-TSX); BUY, C$15.50

Investor day update reinforces strong FCF outlook; lays out spending priorities

Five-year outlook emphasizes a nimble and prudent capital allocation strategy, but is still centred on taking net debt to <$5B, which we see occurring by ~YE2020e. CVE is quickly delivering, diffs should stay relatively narrow, and management is executing.

CVE restricts oilsands output

Our 1Q18e production estimate is down 5%, but our FY18e estimate is largely unchanged given unchanged production guidance, while our ‘18e CFPS estimate is down 2%. Our official estimates do not yet reflect QTD commodity prices. However, based on QTD prices, we suspect 1Q18e CFPS may be ~zero. $14.50 TP and BUY rating unchanged.

FLASH: Weyburn fetches $940 mm

The process to divest of CVE’s four legacy properties is nearly finished, as CVE announced a $940 mm transaction for Weyburn. The $940 mm figure is roughly in line with the $1.0 billion figure we were using in our modeling assumptions, which we suspect is similar to Street consensus expectations.

Commodity Price Update – Impact on Integrateds, Large Cap E&P, Oilsands

3Q16e WTI prices look set to average ~US$44.50/bbl vs. our $50.00/bbl prior estimate. We have also reduced our 4Q16e WTI forecasts by US$5.00 to US$50.00/ bbl, but left our 2016e+ oil & gas price deck largely unchanged. For the second time in three months we are increasing our forecasts for Canadian refined product premiums relative to New York Harbor.

2Q16 Update

CVE’s cost structure continued to decline in 2Q16, even prior to ramp-up of two large projects in 2H16e. Our go-forward CFPS estimates are modestly improved as is our RENAV. Target price increased $0.50 to $18.50/share. The stock looks inexpensive relative to our longer term views, but expensive at US$60/bbl WTI. CVE’s core assets are currently generating low margins (bitumen, mid-west U.S. refining).

2Q16 CFPS $0.58/SHARE BEATS, CAPEX AND OPEX GUIDANCE LOWERED

Market Impact: Positive, as CFPS beat expectations, and capex and opex guidance have been reduced.

Sustaining Capital and Implied Free Cash Flow

We have analyzed recent Company estimates of sustaining capital. Relative to our approximations of sustaining capital, post Horizon expansion, at current prices CNQ offers a far better free cash flow yield than the Canadian Integrateds, even in a high case refining margin scenario (see charts on page 2). We are upgrading our ranking on CNQ to Top Pick from Outperform, increasing our target price by $3.00 to $47.00/share, while we have reduced our target prices for both HSE and CVE by $1.00/share

Impact on Integrateds, Large Cap E&P, Oilsands

Commodity Price Update – Impact on Integrateds, Large Cap E&P, Oilsands

Cenovus 1Q16 Update

1Q16 cash flow was, as expected, negligible, despite hedging gains, given lowcommodity prices . 2016e capex guidance is now $1.2 billion (previously $1.2-$1.3 billion).Expansion projects remain on track, while Foster Creek’s base operations appear to have turned a corner, again.While cost reduction efforts continue, lease commitments will likely mean that CVE’s G&A costs per boe will remain above average.Year end disclosures suggest that abandonment liabilities may be turning CVE’s gas assets in

1Q16 RESULTS IN LINE

Market Impact: Neutral. Investors were well aware that low prices were going to result in negligible cash flow for CVE in 1Q16. Operating and financial results were, broadly speaking, in line with expectations.

Integrateds, Oilsands & Large Caps Commodity Price Update

We are updating our estimates to reflect FirstEnergy’s updated price deck for oil, natural gas, and refining crack spreads.

Cenovus 4Q15 and Year-End Disclosures Update

Estimates and NAV updated post 4Q15 results and annual reserves disclosures. Reduced capex, reduced dividend, and new hedges have improved our YE2016e net debt forecast by $0.9 billion, implying a net-debt-neutral 2016e outlook at our price deck (~$0.9 billion increase at the strip).

4Q15 RESULTS - CAPEX BUDGET & DIVIDEND REDUCED

Market Impact: Probably negative, given that once again Management did not anticipate production issues at Foster Creek. The dividend cut is significant but not totally unexpected, and in this market it may be a good thing for the stock.

Alien Metals - Hancock Project, Mining Lease Granted

Alien today reports intraday that the Western Australian Government has granted a mining licence for the Hancock iron ore project for a 21-year term. The granting of the mining licence is the latest milestone delivered by Alien as it advances the project towards development and production.

SP Angel Morning View: Copper prices hit $9,700/t as China smelts concentrates for zero charge Tc/Rc

SP Angel Morning View: Gold resilient as US interest rates climb on long-term inflation concerns

NextSource Materials - Initiation

NextSource is uniquely positioned to build a leading vertically integrated position, ex China, in the supply of Lithium-ion battery anode material which is essential for the Energy Transition. The company is commissioning phase 1 of its world-class Molo graphite mine in Madagascar and is in the final permitting process for its first Battery Anode Facility (BAF) to be located in Mauritius. The company is backed by Vision Blue, established by Sir Mick Davis, former CEO of Xstrata. On our calculat

I3 Energy (I3E LN) - Canada royalty assets sale

I3 has announced the sale of the majority of its royalty interests in Canada, for US$24.8m cash. This allows the company to fully repay amounts drawn on its debt facility and create a working capital surplus, giving I3 significant additional funding flexibility going forward

Jubilee Metals - Operational Update Q3 FY2024

Jubilee today reports its Q3 and third quarter operational results from its expanding operations in Zambia (copper) and South Africa (chrome and PGM). South Africa is on a growth trajectory with record chrome production of 409kt in the quarter (Q2 FY2024 381kt) and a monthly record in March of 145kt and production YTD of 1.13Mt (0.94Mt). Jubilee is well underway to its annual target capacity of 2,1Mt/yr especially with the new 300kt/yr chrome plant at Thutse expected to be operational in August

DEC FY23 Results Update

DEC reported FY23 results which were in line with expectations and announced the acquisition of joint venture assets from Oaktree along with an updated capital allocation framework.

LIBERUM: New Energy Nuggets: Hydrogen - the future is green

SP Angel Morning View: Global Li-ion battery demand reaches all-time in Q1 2024

Zeus Top Picks for 2024 - 2023 review and outlook for 2024

On 9 January last year, we set out our ten top stock picks for 2023, for what turned out to be another relatively poor twelve months for UK equities due to two wars, stubbornly high inflation and further tightening of monetary policy. This was even as other major markets, such as the US, largely recovered in the year. In the 2023 calendar year, the AIM All-Share index fell 8.2% and is still 42% off its 2021 high. From the release of our 2023 top picks note, the average total return (assuming div

Gulf Marine Services (GMS LN) - Contract award

GMS has announced a new contract award, at improved day rates, adding to order book and overall revenue momentum.

Challenger Energy (CEG LN) - £1.5m strategic investment in Challenger

Challenger has announced a £1.5m investment in the company from investor Charlestown Energy. This now allows Challenger to be fully funded for the foreseeable future as it works towards closure of its significant Uruguay farm out to Chevron, and the US$12.5m cash payment to be received once this is achieved.

Tethys Oil AB (SSE: TETY): Increasing further the size of the prize

• The South Lahan area on Block 58 is estimated to hold 55-523 mmbl prospective resources (P90-P10 case) with a mean case of 251.8 mmbbl prospective resources across six prospects in the Ara Carbonate. • Combined with the previously disclosed prospective resources of the Fahd area in the north-eastern part of Block 58, Tethys Oil’s unrisked recoverable prospective resources on the block are estimated to be 435.9 mmbbl (Pmean). • The geological chance of success ranges from 6% to 11% for the six

Is there a “big-picture” change in the cards?

We note that this morning’s announcement by Aminex for a significant potential resource increase in the Ruvuma basin. We believe that the recent pullback in the share price (likely due to delays in the first gas production schedule) provide a good risk/reward opportunity, especially given the future potential in next 12-24 months, highlighted by today’s announcement.

Morning Note – 4 April 2024