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Gold/Mining/Energy : Oil Sands and Related Stocks -- Ignore unavailable to you. Want to Upgrade?

To: 22jt who wrote (25564)	5/13/2013 11:57:50 AM
From: 22jt	Respond to of 25575

CG on STP - EYES ON THE LAST TWO WELL PAIRS EYES ON THE LAST TWO WELL PAIRS We are maintaining our BUY rating and $1.25 target after STP’s FQ3/13 earnings release and conference call. It is evident to us the market was fixated with the McKay production volumes (1,023 boe/d average in April and 1,250 boe/d average for the first week of May) given the ~13% drop in share price post earnings. We continue to believe that the focus should be on the status of the well pairs, and we were encouraged that two more were converted to full SAGD (for a total of seven), as production ramp-up will not occur until all are in full SAGD model. For the next update (May production), we are not expecting a material production increase (although that would be nice), but we will be focused on the last two well pairs stubbornly in circulation. The next couple updates are monumentally important: We have communicated in past research that although the production ramp-up will be an iteration process, we will be compelled to revisit our expectations if there is no supporting data in calendar Q2/13 (i.e., no strong ramp-up trajectory or all wells are still not in full SAGD mode) to provide confidence toward the project’s ability to produce near capacity. The end of June 2013 is the halfway mark of management’s 18-month ramp-up guidance (started in Oct. 2012). If all well pairs are fully converted to full SAGD mode by then (and stay that way), we would see that as a positive for the story. Question of financial flexibility moving to the forefront: We estimate that McKay needs to reach ~5,500 bbl/d or ~45% of capacity in order for STP to break even corporately (Figure 1). In the ultra bear case scenario, where McKay is unable to ramp up beyond the current 1,250 bbl/d (~10% of capacity), even if full steam is injected, STP would be financially squeezed by late this year. Therefore, if McKay is unable to ramp up beyond the break-even level (but >1,250 bbl/d), STP will need to have in place options to improve financial flexibility by late Q4/13 or early Q1/14. The $25mm LOC increase helps, but McKay performance is still the most important component at this point. More.....11 pages research.canaccordgenuity.com