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The transaction provides shareholders of Striker with a larger, more diversified and better capitalized combined entity that has an established production base from the Gear assets, which will provide stable cash flow in an improved commodity price environment to continue to delineate and develop Striker’s emerging Belly River play. The transaction is subject to the customary court and regulatory approvals along with the approval of both the Striker and Gear shareholders. That said, directors and officers of Striker and certain shareholders of Striker, whom in aggregate represent 33.2% of the outstanding shares, have unanimously approved the transaction and entered into voting support agreements with Gear. In light of the acquisition agreement, we have placed a Tender ranking on the stock while placing our target price under review, as we are currently restricted on Gear Energy due to our participation in the Company’s concurrent equity financing. Our revised target price would have been based on applying the 2.325x exchange ratio to our Gear target price.
STRIKER EXPLORATION
Striker reported its 1Q16 financial results that were in line with our expectations in terms of production and spending, although trailed our thinking in terms of cash flow due to lower realized pricing and higher operating costs.
Impact - neutral to slightly negative given lower than expected cash flow, although somewhat of a non-event in light of the Company's ongoing strategic alternatives process
Striker reported its year-end financial results that were reasonably in line with expectations, apart from cash flow which trailed our thinking on the back of higher operating costs. Recall, reserves were reported in March and were largely flat across the PDP and 1P categories, although were up modestly on a 2P basis. There was no update to the Company’s previously announced strategic alternatives process nor has Management provided any guidance for 2016e. With only minor tweaks to our forecast we have maintained both our Speculative Buy ranking and $2.00 per share target price.
Impact - slightly negative given lower than expected cash flow, although somewhat of a non-event in light of the Company's recently announced strategic alternatives process
Striker reported its year-end reserve book, which came in largely as expected given a year that saw limited capital investment. Reserves were largely at across the PDP and 1P categories, although were up modestly on a 2P basis. More noteworthy would be the announcement of a strategic alternatives process with a view to enhance shareholder value. In light of the strategic review process, we have pulled back on our 2016e capital spending assumptions leading to a downdraft in our production forecast. We have also updated our NAV methodology resulting in a new risked exploration NAV of $2.44 per diluted share using our price deck. We maintain our Speculative Buy ranking on an elevated target price of $2.00 per share.
Impact: Neutral to slightly positive. Striker's valuation has remained on the low end of its Small Cap peer group since inception, and thus we expect that incremental value could be unlocked for shareholders through the strategic alternatives process
Striker has announced that it has entered into an agreement to sell its non-core GORR at Killam for gross cash proceeds of $5.2 mm with equivalent transaction metrics of $108,000 per boe/d or ~9.5x annualized cash flow. Operationally, the Company’s 4Q15e Belly River program continues to yield promising results with Striker’s most recent well, targeting a Belly River channel sand, having delivered initial production rates in excess of 180 bbl/d of light oil over the first 12 days of production. On average, Striker expects its 3x Belly River wells put on production in 4Q15e to date to generate IRRs in excess of 30% within a WTI US$45.00/bbl commodity environment.
Impact: Positive. Cash proceeds of $5.2 mm from Striker's GORR disposition at Killam will help fund further development of its Wilson Creek Belly River asset, with the Company's most recent wells drilled as part of its 4Q15e Belly River program continuing to deliver promising initial results, while maintaining its balance sheet as well as throughout this challenging commodity environment.
Striker’s 3Q15 financial results featured production and cash flow ahead of our outlook from lower than anticipated capital spending. Operationally, the Company has provided initial results from its latest 2x Belly River wells with early performance from both wells trending above Management’s internally generated Tier 5 type curve. Completion of the remaining 4x wells is underway with further results from at least 2x more wells expected by the end of this year.
Impact: Positive. Striker's 3Q15 financial results featured production and cash flow ahead of our outlook from lower than anticipated capital spending.
Striker has reported its 2Q15 financial results which were consistent with our outlook for production (which was pre-released as part of the Company’s Wilson Creek Belly River acquisition at the end of July), cash flow, and on a capital spending basis. Given ongoing restrictions on the Nova system (~350 boe/d) and temporary production shut-ins at Striker’s non-core properties (~120 boe/d), the Company has re-iterated its 2015e production guidance of 2,650 boe/d from net capital spending of $30 mm (including the Company’s most recent Belly River acquisition for $8.0 mm).
Impact: Neutral. Striker's 2Q15 financial results were consistent with our outlook for all key measures, with the Company re-iterating its 2015e production guidance of 2,650 boe/d.
Striker’s most recent Belly River transactions further consolidate the Company’s land position at its Wilson Creek property by increasing its light-oil Belly River development well inventory to 41 (37.9 net) locations and prospective Belly River acreage to 202 (155 net) sections. Further, operationally the Company’s current volumes of ~2,640 boe/d appear to be ahead of its formal 3Q15e guidance levels and our forecast calling for production of 2,500 boe/d which, along with the newly acquired volumes of ~130 boe/d, has prompted a modest increase to our annual 2015e and 2016e volumes to 2,700 boe/d and 3,000 boe/d, respectively.
Impact: Neutral to Slightly Positive. Striker's most recent Belly River transactions further consolidate the Company's land position at its Wilson Creek property, increasing its light-oil Belly River development well inventory by 8 (7.4 net) locations to a total of 41 (37.9 net) locations. Further, operationally the Company's current volumes of 2,640 boe/d appear to be ahead of its formal 3Q15e guidance levels and our forecast calling for production of 2,500 boe/d despite TCPL restrictions amounting to 350 boe/d.
Impact: Neutral. Following Striker's most recent Belly River acquisition, we had expected the Company's line of credit to remain unchanged at $55 mm.
On the heels of the Company’s latest Belly River acquisition, Striker has rolled out its first full quarter of results following the significant acquisition activity that took place in 4Q14. Recall, the Company closed the acquisition of Exoro Energy while also completing a concurrent property acquisition at Killam in east central Alberta.
Impact: Slightly Positive. Striker's 1Q15 results featured production and cash flow that was ahead of our expectations from capital spending that was lower than we had anticipated. Further, the Company's Board of Directors has approved an expanded 2015e capital budget of $22 mm, up from $11 mm prior, which will allow for 3 additional Belly River wells to be drilled with a corresponding 10% increase to its annual production guidance to 2,650 boe/d (up from 2,400 boe/d prior).
Impact: Positive. Striker's acquisition at Wilson Creek is complementary to the Company's existing acreage and significantly increases its internally evaluated inventory in the Belly River play to 33 (30.5 net) locations.
In 4Q14, Striker’s first, partial quarter of operations following its Killam asset acquisition and the corporate acquisition of Exoro Energy that were completed in late November 2014 for total consideration (including debt) of $113.8 mm, the Company’s 4Q14 financial and operating results were largely in line with our thinking.
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