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We are discontinuing coverage on BlackPearl Resources following the company’s shareholders approval to combine with International Petroleum Corp. (TSX:IPCO), acquiring all of the issued and outstanding shares on the basis of 0.22x IPC shares for each BlackPearl share. Accordingly, all prior research ratings, price targets and earnings estimates must no longer be relied upon.
BlackPearl Resources
BlackPearl announced first quarter financial and operating results that modestly trailed our outlook and consensus, though view this as nonevent in light of dynamicism in the heavy differential quote and completion of its Onion Lake Phase II construction effort. Onion Lake Phase II is on stream and turned over to first oil. There are no changes to its 2018e production or capex outlook. Our 2018e and 2019e CFPS outlook is down 5% largely driven by updating its hedge book in our estimates. Aligning our 12-month target price to a ~6.1x 2019e EV/DACF multiple on the forward strip, we have pared back our valuation to $2.15/sh to preserve our prior target multiple assignment from last update.
Impact: Positive. Formal regulatory approval for BlackPearl's Blackrod project adds a significant resource and value wedge to the Company's development portfolio; however, with an estimated $800 mm in capital required for the first 20,000 bbl/d Phase of the project, a considerable corporate financing funding gap remains to be closed, potentially with the help of a financial JV partner.
BlackPearl reported second quarter financial and operating results that were well ahead of our forecast and consensus, demonstrative of an ability to achieve success on the principal factor we are focused on – lower costs. While the market will likely remain observant until confirmation of a sustained crude oil price recovery or fundamental change in the ability to accelerate its growth prospects by alleviating a capital constrained position, we remain constructive on the stock and would continue to accumulate shares.
Impact: Positive. BlackPearl's revised borrowing base of $117.5 mm remains sufficient to execute the Company's 2016e capital spending budget of $10-$15 mm with our outlook expecting its debt levels to continue to fall from current levels of $80 mm (or ~0.68x its current capacity) throughout the balance of the year. Operationally, BlackPearl's ramp-up at its thermal Onion Lake project continues to look strong having reached the project capacity of 6,000 bbl/d in June (on schedule) and then surpassing it with current production 5% ahead of nameplate at 6,300 bbl/d.
BlackPearl provided a status update surrounding its Onion Lake Thermal SAGD project (Phase I), noting current rates of 6,300 bbl/d which is above its nameplate capacity of 6,000 bbl/d and is obviously positive.Additionally, its revised LOC was taken down to $117.5 mm from $150 mm which should not be a surprise to the market in light of WCS price deterioration since last review.There are no changes to our forecasts. We continue to offer an Outperform ranking on a $1.55/sh 12-month target price.
BlackPearl reported first quarter financial and operating results that were well ahead of forecast, demonstrative of an ability to achieve success on the principal factor we are focused on – lower costs. Our 2016e and 2017e CFPS forecasts are up significantly on receipt of this report. The market has taken the stock up significantly since we last proclaimed that it was poised to be phoenix rising from the ashes on price recovery, but we do not believe it is over yet. We would buy this stock today in the market.
BlackPearl reported fourth quarter nancial and opera ng results that markedly bested our es mates, highlighted by CFPS 29% ahead of forecast, net debt 10% lower, and be er than an cipated PDP FD&A costs. While the outlook remains tenuous at current strip prices with D/CF of ~6.7x run-rate, we iden fy management’s recogni on of the current situa on and adaptability in this por on of the cycle. Valida on that the rst phase of its Onion Lake thermal project is working is an important aspect here, and to that end, while s ll risky, believe the Company has su cient liquidity to render an outlook that is not as specula ve as previously portrayed.
We have updated our estimates to reflect lower capital investment in 2016e than our prior forecast. Acknowledging the current forward strip, we illustrate BlackPearl as a negative cash flow generator in 2016e and 2017e. Onion Lake SAGD continues to ramp up in line with management estimates at ~4,000 bbl/d. Management will look to conserve capital and only pursue outlays that are absolutely necessary as it moves to preserve equity value in the current market. On our valuation methodology, consistent with prior periods, BlackPearl equity represents a binary outcome within the context of the current crude oil price environment.
In light of the depressed commodity environment, BlackPearl has outlined an initial 2016e cash flow funded budget of $15 mm aimed at preserving its balance sheet while corporate production expected to grow to 10,000-10,500 bbl/d of oil given the ongoing ramp-up from the Phase I of its Onion Lake thermal project.
Impact: Neutral to slightly positive. In light of the depressed commodity environment, BlackPearl has outlined an initial 2016e cash flow funded budget of $15 mm aimed at preserving its balance sheet and paying down debt while corporate production expected to grow to 10,000-10,500 boe/d given the ongoing ramp-up from the Phase I of its Onion Lake thermal project. Additionally, the Company's lenders have maintained its credit facility at $150 mm.
BlackPearl reported second quarter financial and operating results that were in line to slightly ahead of expectations. Market scrutiny will surely focus on the ramp-up of its Onion Lake SAGD project, of which there are no changes to its timetable, with first oil expected in September following steam injection that commenced in May.
Subsequent to our recent Commodity Price Forecast Update characterized by a material lift to heavy oil price expectations, we illustrate revised BlackPearl estimates reflective of strong CFPS growth projections principally driven by the commencement of an Onion Lake Phase I SAGD build (+6,000 bbl/d nameplate) which should begin contributing to corporate volumes this summer.
Impact: Slightly Positive. Operationally, Phase I at BlackPearl's thermal Onion Lake project has commenced first steam on the Company's previously disclosed timeline while the second Blackrod pilot well pair continues to perform above our initial expectations, with current production above 500 bbl/d of oil and SOR below 3.0x. Additionally, the Company's credit facility has been renewed at $150 mm, unchanged from before, and remains more than sufficient to fund BlackPearl's near term development activities based on our current outlook.
BlackPearl reported first quarter operating and financial results that trailed volume-wise, reflective of voluntary shut-in of a portion of conventional Onion Lake barrels, though delivering financial results in line with expectations in aggregate. The largest takeaway is affirmation that BlackPearl has completed construction of the 6,000 bbl/d Onion Lake SAGD infrastructure and is current commissioning facilities, executing its build within its budget ($220 mm) and ahead of schedule.
