Dilutive equity offering prompts price target modification - Analyst Blog
09 Juillet 2012 - 1:54PM
Zacks
Despite the sequential monthly production improvement at
Woodrush, dilutive equity offering prompts price target
modification
By Steven Ralston, CFA
Dejour Energy (DEJ) completed an
equity financing for 18,130,305 units at a price of US$0.26 per
unit in June. Each unit in the offering consists of one common
share and 3/4 of a warrant, one of which entitles the holder to
purchase one common share at an exercise price of US$0.40 between
December 4, 2012 and June 4, 2017. The net proceeds will be used
towards the development of Dejour’s oil and NGL projects.
The stock reacted negatively to the announcement of the equity
offering, declining 29% from $0.31 to $0.21. Though the completion
of the offering was a required provision for the closing of the $14
million debt facility (which is needed to develop Kokopelli), the
price level of the offering and its dilutive effect were recognized
by investors. In addition, there were no investor expectations for
equity offerings this year.
Dejour’s NAV is now estimated to be $132.4 million ($0.80 per
diluted share). The $132.4 million is attained by adding the
company’s assets of $20 million of land (at cost), $112.9 million
of PV-10 Proved Reserves and net cash of $5.6 million and then
deducting $6.1 million in debt (listed as a current liability on
the company’s balance sheet). Therefore, our target price has been
adjusted to $0.80, primarily due to the dilutive equity offering.
Our NAV model is exhibited in our research report that is available
at scr.zacks.com.
Production levels at Woodrush are improving sequentially due to the
increased effectiveness of the waterflood and reworking the third
well which was drilled late last year. In early June, Dejour
provided an update on the oil production from Halfway E Pool on its
Woodrush property in northeastern British Columbia. Production
continues to increase from the level reported for the first
quarter. Gross oil production in the month of May increased 15.0%
sequentially from an average of 234 Barrels of Oil per Day (BOPD)
in April to 269 BOPD. Also, the company reported that gross
production during the first six days of June increased to an
average of 319 BOPD. Total gross field production, which includes
gas production, averaged 630 Barrels Oil Equivalent per Day (BOEPD)
during the first six days in June, up from 556 BOEPD in 2011.
If wells A-1–I and AB-1-I can attain company-targeted production
levels, management expects the gross oil rate at Woodrush to
increase to approximately 1,000 Barrels Oil Equivalent per Day (70%
oil and 30% gas) by the end of 2012. Currently, production from
well A-1–I is being restricted to about 25% of its oil flow
potential due to reservoir management constraints. Well A-1–I was
completed in second quarter of 2010 and initially tested at rates
in excess of 500 BOPD. Production levels of well A-1–I had to be
curtailed by at least 250 BOPD in mid-2010 to conform to British
Columbia’s allowable quota regime.
Drilling the company’s initial four wells into the liquid-rich gas
Kokopelli field acreage is slated for the third quarter when the
Williams pipeline should be available in the area. Importantly,
once the drilling has been completed and the wells are in
production, the status of the lease on the entire 2,200 gross acres
will change from a primary term to a held-by-production lease,
perpetuating Dejour’s right to operate at Kokopelli as long as the
wells produce the minimum paying quantity of gas.
Our rating on Dejour’s stock remains Outperform despite the recent
dilutive equity offering. The Outperform rating is based upon the
expectations of increased production from the company’s Woodrush
property and the anticipated drilling at Kokopelli in the third
quarter, along with the stock’s continued attractive valuation
level of the stock relative to its reserve valuation.
Please visit scr.zacks.com to access a free copy of the DEJ
research report.
DEJOUR ENERGY (DEJ): Free Stock Analysis Report
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