Craig / Northrock Resources
I think Northrock is one of the best stories around regarding ability
to transform into a prominent natural gas producer.
Current production has grown 20-25% from third quarter averages,
reflecting high quality of activity. Production levels will exit
1998 exceeding the target of 27,000 boe/d.
Over 25 million boe of reserves, 80% natural gas, have been added
(P+P) during the first nine months at an estimated cost of $6.00/boe.
Northrock states its bank lines are secure, and concerns of Northrock
facing pressure from its bank appear unfounded at this point in
time. Reserve additions have offset weak commodity prices in
recalculations of the company's bank lines.
Northrock will maintain an active Capex program into the first
quarter of 1999, which will likely increase debt levels. Second and
third quarter 1999 spending will likely be more in line with cash
flow.
The major concern regarding this growth story is the company's
balance sheet (5.1X D/CF in estimate 1998 and 3.6X in estimate 1999
and 2000. Those are very high multiples.
Book value was $9.52 for year ended 1997.
p/cf p/cf
Cash Flow Estimates 1997 1998E 1999E 2000E Jan. 20 1999 2000
Northrock Res. 2.03 1.93 3.19 3.68 $13.25 4.15X 3.60X
Northrock's production continued to grow aggressively, from a
third quarter average of 21,007 BOE per day, to an anticipated
exit 1998 production rate of 27,200 BOE per day. The capital
program for 1999 will further enhance production growth, as
average production volumes for 1999 are expected to increase by
more than 35 percent to 29,000 BOE per day, including 175 million
cubic feet per day of natural gas production. Of total production,
natural gas will consist of 55% in 1998, 60% in 1999 and 63% in 2000.
Approximately 70 percent of the planned 1999 capital expenditure
program will be attributable to drilling and completions, of which
more than 90 percent will be related to natural gas activities.
Northrock's high level of drilling activity will continue into
1999 as up to 25 rigs are expected to be operating during the
first quarter of 1999, including over 20 rigs in West Central
Alberta. Northrock anticipates drilling 230 gross (130 net) wells
in 1999, comparable to 1998 drilling activity.
As debt falls more in line with cash flow, shares in this company
will sell at a premium compared to its peers. This is a $20.00+
stock 15 months+ down the road -- if debt is managable. |
