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Prairie Provident Resources: THE INVESTMENT CASE

Prairie Provident's production hits new high as cash flow tops forecasts

“Capital expenditures of $4.8 million were fully funded with cash flow," Mackie Researchr noted, as it reiterated its 'buy' recommendation and C$2 price target.
Wheatland drilling
INVESTMENT OVERVIEW: PPR The Big Picture
The company enjoyed a successful drilling program at Wheatland

Second quarter production reached a new record for Alberta-focused oil and natural gas producer Prairie Provident Resources Inc (TSE:PPR).

Production averaged 5,872 barrels of oil equivalent (boepd), a 66% increase over the same period in 2016 due primarily to production additions from a successful Wheatland drilling program, the Arsenal acquisition, and the high-quality, light oil assets acquired in the Greater Red Earth area of Northern Alberta in March of this year.

READ Prairie Provident Resources completes acquisition of Northern Alberta assets for $41mln

READ Prairie Provident Resources unveils strong test results from Wheatland wells

Quarter-on-quarter, production was 4% higher, driven by a 22% increase in crude oil volumes, which more than offset the impact of third party facility outages at the Waterton and Wheatland areas that curtailed production by around 300 boepd.

The Evi area also experienced extended downtime due to wet weather and road closures that suppressed production volumes by around 190 boepd.

In the second quarter oil and natural gas revenue rose to C$21.68mln from C$9.15mln in the same quarter of 2016.

Net earnings were positive at C$1.07mln versus a loss the year before of C$42.22mln.

Earnings per share clocked in at one cent versus a loss a year earlier of 44 cents per share.

Operating netbacks (after realized hedging gains) for the quarter were $18.20/boe, a 2% increase over the same period in 2016, largely due to stronger realized prices that were partially offset by lower gains on derivative instruments, higher operating costs and increased royalties due to higher pricing.

At the end of the reporting period the company had bank debt of C$47mln, leaving it C$18mln of headroom under the terms of its banking facility.

“This leverage level is supported by our reserves base and future cash flows, but remains above our target levels,” the company stated.

“Despite continued commodity price volatility, PPR remains focused on delivering growth through production and funds from operations while continuing to preserve our financial position. As such, PPR is targeting the lower end of our previously announced 2017 guidance range and are forecasting a capital budget of approximately $25 million,” the company revealed. 

The company plans to defer a portion of the fourth quarter development to 2018, which will lower its expected end-of-year production rate to between 6,000 and 6,500 boepd.

“We will continue to monitor the pricing conditions and adjust the pace of our development as warranted to protect our project economics,” the company pledged.

Broker Mackie Research said it was a solid quarter with cash flow of C$7.1mln that was ahead of its expectations; Mackie had forecast cash flow of C$4.8mln, and said the “beat” was primarily due to a production mix that was more weighted to oil.

“Capital expenditures of $4.8 million were fully funded with cash flow," the broker noted, as it reiterated its 'buy' recommendation and C$2 price target.

Prairie Provident's shares currently trade at 46 cents.

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