Palliser Oil & Gas surges as Casimir Capital backs strong buy rating

5th Feb 2013, 2:38 pm by Deborah Bacal

The oil and gas producer announced a 2013 capital budget of $24 million, and provided an average production forecast for the year of 2,700 to 2,800 barrels of oil equivalent per day (boe/d). The oil and gas producer announced a 2013 capital budget of $24 million, and provided an average production forecast for the year of 2,700 to 2,800 barrels of oil equivalent per day (boe/d).

 

Casimir Capital analyst Ryan Galloway has kept his $1.50 target price and strong buy rating on Palliser Oil & Gas (CVE:PXL) after the company provided "more clarity" on its 2013 budget and production guidance. 

The oil and gas producer announced a 2013 capital budget of $24 million, and provided an average production forecast for the year of 2,700 to 2,800 barrels of oil equivalent per day (boe/d). 

Fourth quarter production averaged 2,480 boe/d, in line with Casimir's estimates, whille opex averaged around $23 per boe for the year. Palliser said it expects to realize $17 million in funds from operations over 2012, 4% better than the analyst's forecast of $16.4 million as the company continues to grow shipments by rail to realize better pricing. 

"Due to wider differentials between WTI and WCS, PXL announced a somewhat lower than expected $24mm capital budget for 2013," Galloway notes. 

"This amount is expected to organically grow average 2013 production to 2,700 – 2,800 boe/d. However with an estimated $39mm in net debt at year-end and a $52mm credit facility, PXL retains room to get much more aggressive later in the year," he adds. 

With potential for heavy oil differentials to narrow in the second half of this year as the BP Whiting refinery upgrade project is complete, bringing 405,000 barrels per day of capacity back online, Galloway says he expects to possible see capex and production grow further. 

Palliser said it plans to increase heavy oil shipments by rail from around 30% of current production to 50% by the end of the year. "With rail access bypassing pipelines, this allows the company to avoid local differentials and achieve better pricing," the Casimir analyst asserts. 

"Unlike some competitors, PXL’s double-tank systems have allowed it to ship oil meeting rail spec with minimal incremental capital, giving it an advantage at ramping up rail shipping going forward."

Shares of Palliser, which operates in two core areas in Canada, rose over 13% today to 59 cents. The company produces heavy oil in the greater Lloydminster area of Alberta and Saskatchewan and natural gas in the Medicine Hat area in southeast Alberta.