TSX Commentary » ARC Energy Trust

ARC Energy Trust AET.UN ARC Still Trading Above Revised Intrinsic Value Estimate

admin — Wed, 10 Feb 2010 17:14:14 +0000

Veritas Research: ARC Energy Trust (AET.UN) – $20.33 – ARC Still Trading Above Revised Intrinsic Value Estimate
Sell, Intrinsic Value Estimate: $19.50 (Oil at $80.00/bbl)
Ante Creek acquisition highlights decent Q4: Fourth quarter production came in at 62,520 barrels of oil equivalent per day (boe/d), with cash flow per unit of $0.60. The $180 MM Ante Creek acquisition in December comes in at $14.30 per barrel of 2P reserves, but includes many fringe benefits such as an additional 30% interest in a gas plant, 163.5 net sections of undeveloped land and 30 identified horizontal drilling locations, with more to follow. On a corporate basis, ARC expects to produce 70,500 to 72,500 boe/d and spend $610 MM in capex in 2010. For 2010, ARC plans to spend $250 million to complete its 60 mmcf/d Dawson gas plant ($5.8 MM), to drill 35 wells of which 32 are horizontal, and to begin work on a second 60 mmcf/d gas plant. This activity will allow it to reach and maintain Dawson production at 115 mmcf/d to fill its increased capacity. An additional $47 MM will be allocated to its West Montney lands including Sunrise. ARC’s disclosed NAV value of $21.98 should be adjusted: In its reserves release, ARC estimates a year end “produce-out” NAV of $21.98 per unit (10% discounting). Vertias suggests recalculating, adjusting for taxes and the 13 million units issued in January. This results in an adjusted NAV of $17.83 (not excluding G&A). Underlying this number are assumed prices averaging $6.80 for AECO and $91 for Edmonton Light through 2015. ARC is trading at a 14% premium to this adjusted valuation. Following the issuance of 13 million units, ARC’s long term debt is now $606 MM with $710 MM of unused credit lines. Veritas’s valuation has increased, but ARC is still above it: Relative to ARC’s NAV calculations discussed above, Veritas uses lower pricing assumptions to arrive at its intrinsic value of $19.50 per unit, which assumes US$80 oil and mid-cycle gas prices of US$6 Henry Hub. Veritas’s valuation has increased with ARC’s additional tax pools ($2.2B at year end), its Ante Creek acquisitions and its January unit for debt maneuver, however Veritas continues to view ARC as overvalued, and maintains a Sell rating.

ARC Energy Trust AET.UN Montney Drives Impressive Reserves Growth and FD&A

admin — Wed, 10 Feb 2010 17:13:29 +0000

ARC Energy Trust (AET.UN): $20.33 – Montney Drives Impressive Reserves Growth and FD&A
Outperform, Average Risk, Price Target: $24.00 (prev. $23.00)
ARC’s Q4/09 results were ahead of our expectation and broadly in line with consensus. RBC CM has increased its price target to $24. ARC reported year-end reserves (2P) of 379 mmboe, +18% from last year. Growth was primarily driven by Montney reserve additions at Dawson and the Sunrise/Sunset blocks. FD&A costs (incl. FDC) were $11.55/boe, a result RBC CM expects will rank among the best in our coverage universe. While ARC’s reserves performance this year was excellent, the Upper Montney holds the potential to drive a similar level of growth for the next 3-4 years as booked recovery factors remain low, particularly on the Sunrise/Sunset and Septimus acreage where offset operators have had strong drilling results. While Dawson will clearly be the near-term growth driver for ARC, the 2010 capital budget includes several initiatives that could add material value over time, including: (i) Testing of other zones in NE BC, notably the Lower Montney at Sunrise/Sunset; (ii) The drilling of 17 horizontal Cardium wells at Pembina, which will test various geological settings and completion techniques and may lead to a substantially larger program in 2011; and (iii) Delineation of the substantial undeveloped land on the properties recently acquired at Ante Creek.

ARC Energy Trust AET.UN Anticipating Solid Year-End

admin — Mon, 08 Feb 2010 20:27:20 +0000

ARC Energy Trust (AET.UN) – $20.37 – Anticipating Solid Year-End
Outperform, Average Risk, Price Target: $23.00
ARC Energy is set to kick off reporting season for the oil & gas trust sector, with results expected after the close on Tuesday, February 9th. Several factors give RBC CM’s confidence that ARC will report solid year-end reserves and F&D costs: 1. Capital spending in 2009 was concentrated in the NE BC / NW AB core area, where drilling results at Dawson and Ante Creek have been very strong; 2. Based on RBC CM’s review of public data, base declines appear to have been relatively stable, and volumes and capex for the year should be substantially in-line with GLJ’s estimates in last year’s reserve report of 63,350 boe/d and $325MM, respectively; and 3. Though a significant Montney reserves increase was recognized last year, booked recovery factors are low. RBC CM thinks ARC will continue to be conservative in its reserve recognition practices, though given the unbooked potential in the Montney, it would not be surprised to see organic growth in 2P reserves in excess of 10%. RBC CM’s Q4/09 estimates incorporate production of 63,600 boe/d and basic cash flow per unit of $0.54. Consensus cash flow is $0.59 per unit. ARC continues to be one of RBC CM’s best oil & gas trust ideas due to the production and reserves growth potential in the NE BC Montney, its attractive tight oil assets (Pembina, Ante Creek and Goodlands) and its strong management team. RBC CM reiterates its Outperform rating and $23 target.