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Geo-Jade Petroleum has received Chinese State Administration of Foreign Exchange (SAFE) approval to complete the acquisition of Bankers Petroleum for C$2.20 per share. There are no additional regulatory hurdles for Geo-Jade to acquire Bankers. It is expected that completion of the agreement to acquire Bankers will take approximately two weeks, and will be finalized prior to September 30, 2016. Bankers stock will be delisted prior to the end of September 2016. With this positive update, and due to the stock being halted at $2.18 per share prior to the announcement, we have adjusted our ranking from Outperform to Tender. Our target price of $2.20 per share matches the acquisition price.
Bankers Petroleum
Geo-Jade Petroleum has received Chinese State Administration of Foreign Exchange (SAFE) approval, and as such, the acquisition of Bankers Petroleum for C$2.20 per share can now be completed.
Market Impact: Positive. Bankers has announced that the tax assessment dispute has been positively resolved. As expected, a third-party auditor determined that Bankers did report its expenses properly. The Company has paid a total of US$37 mm (equivalent to C$0.18 per share) that can now be recaptured. Recall, the original tax assessment was for US$57 mm (equivalent to C$0.28 per share). The acquisition of Bankers by Geo-Jade Petroleum is ongoing. Resolution of the tax dispute should be viewed positively in the context of the acquisition proceeding.
Market Impact: Neutral. The pending acquisition by Geo-Jade at a price of C$2.20 per share outweighs 2Q16 results. The acquisition is expected to close by September 30, 2016 and only remains subject to regulatory approval of the Chinese State Administration of Foreign Exchange (SAFE). If SAFE approval is not received by September 30, 2016, Bankers is entitled to the US$20 mm (equivalent to C$0.10 per share) reverse termination fee, should Bankers elect to terminate the agreement.
Market Impact: Neutral. The acquisition agreement between Bankers and Geo-Jade has not yet closed, due to delays in receiving regulatory approval from the Chinese Stare Administration of Foreign Exchange (SAFE). The delay is not unexpected, given the timing to date and the typical nature of government bureaucracies. Bankers stock is already trading at a discount of 9% to the acquisition price of $C2.20 per share.
Market Impact: Neutral. The acquisition of Bankers by Geo Jade is still expected to close in July 2016e, which outweighs a small production curtailment in 2Q16 due to an interruption at the port facility and the shut-in of production for some maintenance and optimization work.
Market Impact: Neutral. Bankers reported 1Q16 production of 17,363 bbl/d and cash flow of US$1.5 mm. Cash flow was weaker than expected, due to lower than anticipated sales volumes and realized pricing. FirstEnergy was forecasting cash flow of approximately US$11 mm. The 1Q16 results are overshadowed by the pending acquisition by Geo-Jade Petroleum.
Bankers reported 1Q16 production of 17,363 bbl/d and cash flow of US$1.5 mm. Cash flow was weaker than expected, due to sales volumes and lower realized pricing that was temporarily reduced in 1Q16 to compete with other heavy crude oil volumes in a very weak price environment. The 1Q16 results are overshadowed by the pending acquisition by Geo-Jade Petroleum. Geo-Jade Petroleum has offered a cash price of C$2.20 per share for Bankers Petroleum, which currently represents a 15% premium to the current stock price. Our 2016e and 2017e outlook remains unchanged.
Bankers stock is currently offering a potential return of 22% to Geo-Jade Petroleum’s cash offer price of C$2.20 per share. We recommend that investors buy Bankers to take advantage of the 22% return to the offer price. We are of the opinion that deal risk is low. If the acquisition is not completed, Bankers benefits from a break-fee of US$20 mm (C$0.10 per share) and shareholders would continue to hold a company that is managed by a top-tier team in a potentially increasing crude oil price environment.
Impact: Neutral. In light of the looming acquisition by Geo-Jade, Bankers has announced 1Q16 production of 17,363 bbl/d which tracked our forecast and was 4% lower q/q as the Company deferred all drilling activity at the start of the year to preserve balance sheet strength. The Company continues to monitor its EOR flood patterns which are continuing to perform as expected and to date is currently producing 4,952 bbl/d (29% of production) from its EOR program alone. During the quarter, Bankers converted one producing well to injector well and has 49 polymer and five water flood patterns implemented at the quarter's end.
We had the pleasure of hosting David French, President and CEO, at the FirstEnergy Calgary office. Mr. French provided insight on the transaction and the process to closing. Post the update, we are of the view that there is less deal risk than what is implied in the current stock price, which is still offering a potential return of 20% to the offer price of C$2.20 per share.
Bankers has agreed to a cash offer price of $2.20 per share. We recommend that shareholders tender their shares. The cash offer price represents a 98% premium to Friday’s closing price and is 10% greater than our prior target price of C$2.00 per share. The attractive offer provides liquidity to existing shareholders, a compelling premium and valua on metrics, and eliminates any risk associated with the pending audit results of the US$57 mm tax assessment.
Market Impact: Neutral. Bankers previously reported 4Q15 production of 18,000 bbl/d, while cash flow of US$31 mm was less than our estimate of US$36 mm. Our 2016e and 2017e production and financial estimates remain relatively unchanged.
Bankers previously reported 4Q15 production of 18,139 bbl/d, while cash flow of US$31 mm was less than our estimate of US$36 mm, due to differences in a realized hedging gain and a realized foreign exchange loss. Our forward looking production and financial estimates for 2016e and 2017e remain relatively unchanged. The Company previously reported 1P reserves of 125 mmbbl and 2P reserves of 202 mmbbl. Please refer to Bankers Reports Reserves that Remain Flat Y/Y. The audit of the US$57 mm tax assessment is expected to conclude in 2Q16e.
Bankers maintained its 1P reserves at 125 mmbbl and 2P reserves at 202 mmbbl at year-end 2015, which we view positively.
Market Impact: Positive. Bankers maintained its 1P reserves at 125 mmbbl and 2P reserves at 202 mmbbl. The reserve evaluators (RPS and D&M) value the 2P reserves at C$7.49 per share, which is substantially higher than the current stock price.
Bankers has signed a formal agreement for the appointment of an international auditor to review Bankers' 2011 expenditures and assess whether those expenditures were certifiable petroleum costs according to the Petroleum Agreement and License Agreements. At present, there is a disagreement of cost allocations between Bankers Petroleum and the Albanian Government, which led the Government's tax assessment charge of US$57 mm. The audit is expected to commence immediately and conclude in 2Q16e. Previously, the Market was expecting that the tax assessment would be resolved before the end of 1Q16.
We have materially reduced our Brent crude oil price outlook in 2016e, 2017e and future years, which has resulted in a substantial decrease in our cash flow and NAV estimates for most of our companies under research coverage. Companies that are most impacted by the commodity price revision include EnQuest, Pacific Exploration & Production, Premier Oil, and TransGlobe Energy. Companies that are exposed to natural gas prices and/or fixed commodity prices are least impacted, such as Valeura Energy and Wentworth Resources. Our Top Picks include Faroe Petroleum, Ithaca Energy, and Parex Resources.
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We have reduced our target price to C$3.25/£1.60 per share, which is based on our revised risked NAV estimate of $3.22/£1.58 per share. Our target price implies a 2016e DACF multiple of 6.9x (previously 7.7x) based on FirstEnergy’s price deck and 11.9x on strip pricing. Our risked NAV estimate decreased 21% to C$3.22/£1.58 per share due to our reduced production outlook, slightly higher cost structure associated with reduced volumes, and the very conservative assumption that the third-party audit and tax assessment is not ruled in Bankers’ favour and the Company is fully responsible for the entire US$57 mm tax assessment. We believe this is a low-chance, worst-case scenario, which still results in an Outperform recommendation.
Market Impact: Neutral. Banker's 4Q15 production of 18,137 bbl/d and sales volumes of 18,561 bbl/d was relatively in line with expectations. We expect that there will be minimal changes to our go-forward estimates.
Bankers’ 2016 capital program of US$65 mm is less than our anticipated US$90 mm, which results in our 2016 production forecast decreasing 9% to 16,700 bbl/d, while our cash flow estimate decreased 5% to US$87 mm (US$0.33 per share). While our production and financial results have decreased, we believe that Bankers has undertaken the prudent move to limit capital activity to protect the balance sheet in the low crude oil price environment.
Market Impact: Negative. Bankers' 2016 capital program of US$65 mm is less than our anticipated US$90 mm, which results in a lower 2016e production forecast to 16,650 bbl/d and cash flow estimate of US$87 mm (US$0.33 per share). While our production and financial results have decreased, we believe that Bankers has undertaken the prudent move to limit capital activity to protect the balance sheet in the low crude oil price environment.
FirstEnergy has revised its near-term commodity price outlook, as is typical near the end of each quarter. In the near-term, and as it pertains to the International universe, we have become more bearish with respect to our Brent oil price, but continue to be of the view that the crude oil market will come back into balance in the second half of 2016e. Our 2016e Brent oil price forecast has decreased 14% to average US$53.50/bbl, while our 2017e and longer-term forecast remains relatively unchanged. Thus, while there is a substantial decrease to our 2016e cash flow estimate, there is less of an impact on most of our net asset value estimates.
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Market Impact: Positive. Bankers and the Albanian Government have reached an agreement allowing the Company to regain control of its Albanian bank accounts and for operations at the Patos-Marinza Field to continue as normal and uninterrupted.
In this publication, we analyze each companies’ future development capital on 1P and 2P reserves in relation to our 2016e cash flow estimates and the reserve life. With year-end 2015 approaching and new reserve reports to soon be released under a substantially reduced crude oil price environment, we highlight those companies that might be at risk for a decrease in reserves, a greater decrease in reserve value, and/or a need for external sources of financing. Those companies at greatest risk include GeoPark (GPRK NY), LGO Energy (LGO LN), and Pacific Exploration & Production (PRE CN).
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Market Impact: Neutral. Bankers has been awarded Block P in Hungary's third bid round. Bankers has previously discussed diversifying outside Albania, therefore, the award of Block P in Hungary should not be a surprise to the market.
Market Impact: Positive. The International Court of Arbitration of the International Court of Commerce has issued a temporary stop order requiring the Albanian tax department to revoke the suspension of Bankers' Albanian bank accounts, and protecting the Company against enforcement of the previously announced tax assessment.
Market Impact: Negative. The optics of the tax department moving to suspend bank accounts in an attempt to collect US$75 mm is negative. This will likely remain an overhang on the stock until the conclusion of the third-party international audit that is being utilized to resolve an outstanding audit regarding eligible operating and capital expenses for cost recovery.
We recently had the pleasure of hosting Mr. Dave French, President and CEO, to provide an update on Bankers' current operations and go-forward plan. Mr. French provided an update on the Company's cost reduction initiatives that commenced well before the sharp decline in the crude oil price, as well as an update on the EOR program that is flattening decline rates and providing the Company with the opportunity to resume production growth sooner than anticipated in a lower crude oil price environment.
Athabasca Oil Corp. (ATH) 3Q15 – Capex Reduced, Hangingstone Ramping Up Nicely | Canadian Natural Resources Limited (CNQ) 3Q15 Update: The Low Cost Producer Usually Wins | Enerplus Corporation (ERF) Reports Third Quarter Results, Reduces Dividend, Provides 2016e Guidance | Bankers Petroleum Ltd. (BNK): 2016e Cash Flow Increased on Improved Cost Structure |
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Market Impact: Neutral. Bankers previously reported 3Q15 production of 19,600 bbl/d and cash flow of US$42 mm beat our 3Q15 estimate of US$38 mm. Production in 4Q15 of 18,300 bbl/d is below our expectation of 19,100 bbl/d, due to short-term outages. However, exit 2015 production rates between 18,500 bbl/d and 19,000 bbl/d are in line with our expectations.
Bankers reported production, sales volumes and realized pricing in 3Q15 that was slightly better than expected, and as a result, our 3Q15e cash flow estimate has increased 8% to US$38 mm and our 2015e cash flow estimate has increased 2% to US$147 mm. Most importantly, the EOR program continues to meet or exceed expectations, and is now expected to decrease the overall corporate decline rate from 30% to the range between 20% and 25% in 2016e. We have increased our 2016e production forecast by 4% to 19,450 bbl/d. A lower decline rate implies that the Company can stabilize and increase production at reduced capital costs. Also, Bankers can likely deploy an additional drill rig when crude oil prices return to the mid-US$60/bbl level, versus a prior threshold of approximately US$70/bbl.
With the sudden and drastic decrease in crude oil prices, FirstEnergy has elected to update its commodity price forecast mid-quarter and prior to investors returning to their desks at the end of summer.
Commodities - Energy
Bankers previously reported 2Q15 production of 20,050 bbl/d and sales volumes of 19,626 bbl/d. Cash flow for the quarter was strong at US$50 mm or US$0.19 per share, versus our estimate of US$39 mm or US$0.15 per share. The better than expected cash flow results were mostly due to lower than anticipated operating and transportation costs.
Market Impact: Positive. Bankers previously reported 2Q15 production of 20,050 bbl/d and sales volumes of 19,626 bbl/d. Cash flow for the quarter was strong at US$50 mm or US$0.19 per share, versus our estimate of US$39 mm or US$0.15 per share. The better than expected cash flow results were due to lower than anticipated operating and transportation costs, as well as lower cash costs throughout the business.
Bankers reported 2Q15 production of 20,045 bbl/d, which was slightly better than expected and represented 1.4% q/q production growth. The Company’s operational update, with respect to production from the Bubullima reservoir and production from secondary recovery, was strong.
Market Impact: Positive. Bankers has reported 2Q15 production of 20,045 bbl/d, which was slightly better than expected and represented 1.4% q/q production growth. The Company's operational update, with respect to production from the Bubullima reservoir and production from secondary recovery, was strong.
Bankers previously reported 1Q15 production of 19,767 bbl/d and sales volumes of 20,283 bbl/d. Unfortunately, cash flow results of approximately US$25 mm or US$33 mm normalized were below expectations of approximately US$39 mm, due to slightly lower oil prices and higher operating costs.
Market Impact: Negative. While 1Q15 production of 19,767 bbl/d and sales volumes of 20,283 bbl/d were previously released, cash flow results were below expectations at approximately US$25 mm (FCC US$39 mm). The lower than anticipated 1Q15 cash flow results were mostly attributed to a higher cost structure than forecast, which we will true-up with Company management.
FOUR Final results, BNK Settlement of Lawsuit, BDI Contract Win, CAZA $4m Convertible Loan, CGNR* Interims, CHAR 2D Seismic Programme , CLIN Adds New Program, CNC Product Launch, FITB* Appeal and Integration with Samsung, IMTK Contracts win, Herschel heaters connected by LWRF, MARL* Equity Raising, Conversion and Drilling Update, MWE Financial Results, OPTI* Board Appointment, PEG* Contract Win, ROL Acquisition, RTC Network Rail award, SAR* Interims and Research Update, SND AGM Statement, TPET Placement
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