Production for Q2/14 was just shy of our expectations at 10,744 Boe/d versus our forecast of 11,200 Boe/d. That said, CF was strong at $43.2 MM ($0.49/sh), ahead of our $41.7 MM ($0.46/sh) estimate. Stronger realized pricing and better G&A costs were the main contributors to the beat.
Spending was higher than expected for the quarter, coming in at $74 MM versus our $66 MM assumption with 10 (100% WI) wells drilled. DeeThree spent ~160% of cash flow in Q2; we expect the company to spend 147% of cash flow in 2014, moderating to 126% in 2015.
15% Q/Q prod. growth was driven by the Belly River, which saw a 25% increase in volumes to 5,987 Boe/d (now ~56% of corporate production). DTX invested in infrastructure in the area during Q2 to increase capacity to 12,000 Boe/d, and added 12 sections of land, setting-up for more growth.
Overall, we believe that DeeThree has a solid growth profile at a reasonable valuation at 5.3x 2015E EV/DACF and 79% of NAV versus its oil weighted peers at 6.1x and 90% and the entire group at 6.5x and 83%, respectively. With that, we maintain our Sector Outperformer rating.