Pengrowth Energy Corporation

Transcription

1 PGF/PGH (T; N) Stock Rating: Target: Risk Rating: Cdn$1.37; US$1.03 Sector Perform (Unchanged) Cdn (Unchanged) Above Average (Unchanged) Est. Total Return 46% Stock Data - Q1e 2017: 52-week High-Low (Cdn$) $ $2.70 Shares Outstanding (mln) Free Float Pct 80% Net Debt (mln) $1,240 Market Cap. (mln) $771 Enterprise Value (mln) $2,011 Production e 2018e Oil & NGL's (bbls/d) 35,084 29,320 30,420 Nat. Gas (mcf/d) 131, ,080 93,480 Boe/d (6:1) 57,059 48,000 46,000 % Nat. Gas 39% 39% 34% Pricing e 2018e WTI (US$/bbl) $43.22 $57.50 $60.00 AECO (Cdn$/mcf) $2.05 $2.70 $3.10 Corp. Oil & NGL's ($/bbl) $39.24 $54.49 $55.78 Corp. Nat. Gas ($/mcf) $2.25 $2.95 $3.35 Corp. Wellhead ($/boe) $29.32 $40.17 $43.70 Estimates e 2018e Cash Flow (mln) $476.7 $130.5 $230.4 CFPS - diluted CF Netback ($/boe) $22.83 $7.45 $13.72 E&D Capex (mln) $64.4 $125.0 $175.0 Net Debt (mln) $1,485.7 $1,074.2 $1,042.8 Valuation e 2018e P/CF 3.0 x 5.9 x 3.3 x EV/DACF 5.8 x 8.1 x 5.6 x Net Debt / CF 3.1 x 8.2 x 4.5 x EV/BOE/D $58,773 $38,434 $39,422 P/NAVPS 4.6x EV/boe P+P $3.48 Source: Company Reports, NBF Estimates Industry Rating: Underweight (NBF Economics & Strategy Group) March 20, 2017 The NBF Daily Bulletin Oil & Gas Exploration and Production Pengrowth Energy Corporation Disposition & Corporate Update A Step in the Right Direction, but Still Stuck in the Trenches HIGHLIGHTS Event: This morning, PGF announced the proposed sale of about half of its Swan Hills asset base for cash consideration of $180 mln. Swan Hills Divestiture Highlights: PGF plans to divest ~4,920 boe/d (82% liquids) of production and 31 mmboe of P+P reserves for cash consideration of $180 mln. While estimated deal metrics of ~7x CF and ~$37,000/boe/d seem fair in the context of today s commodity price and M&A environment, the transaction was ~13% dilutive to corporate cash flows (not a surprise though, given the company s premium valuation). The deal has an effective date of Jan. 1 st, with an expected close of May 31 st. Pro-Forma: As a result of the deal, PGF is able to bridge the remaining balance of 2017 debt maturities and net debt migrates to $970 mln (2017e D/CF of 8.2x). In stride with the divestiture, 2017 guidance has been revised down to a range of mboe/d (50-52 mboe/d previously), with associated cash flow of $170 mln (US$55/bbl WTI assumption, and from $195 mln). Looking forward, we remain cautious of potential covenant breaches and remind investors of 2018 debt maturities totalling C$350+ mln. Sector Perform Rating; Unchanged Target Price: Albeit small and dilutive to the model, the transaction is important as it enables PGF to bridge the remaining balance of its 2017 debt maturities. While this is a step in the right direction for the company, we do feel this is over-shadowed by concerns relating to an above-average leverage positon (2017e D/CF of 8.2x), the funding of 2018 debt maturities (C$350+ mln) and the perceived pressures imposed by U.S. private noteholders (in our view, creditors seem to be using a potential covenant breach as a tool to be made whole on outstanding debt). While the outlook is tough, we do believe that PGF can weather the storm, granted it will likely come at the expense of dilutive asset sales and/or a refinancing of debt at a higher coupon. In addition, we are somewhat cautious of the fact that the speculated C$500 mln Infor Olds/Garrington deal may be dead, given a recent press release issued by the company. PGF trades at 2017e EV/DACF of 8.1x on leverage of 8.2x, which compares with the peer group average of 5.9x and 1.5x, respectively. Company Profile: Pengrowth is an intermediate E&P with a relatively diverse asset base. The company employs a barbell strategy, which attempts to balance higher growth, higher decline conventional assets (Cardium, Swan Hills & Montney) with a long life, low decline thermal asset (Lindbergh). Brian Milne - (403) brian.milne@nbc.ca Associate: Tim Sargeant, CFA (403) tim.sargeant@nbc.ca Stock Performance (Source: Bloomberg) Price ($/sh) $3.00 $2.50 $1.50 $ ,000 12,000 10,000 8,000 6,000 4, , Mar-16 May-16 Jul-16 Sep-16 Nov-16 Jan-17 Mar-17 Volume (000's)

2 Page 2 Covenant Update (Previously Released): PGF saw relief related to its total senior debt (before working cap) to total book capitalization covenant, granted, other covenants still stand. After satisfying debt payments planned for March, management believes the company will remain in compliance with its covenants through to the end of However, it should be noted that they make the following modeling assumptions: 1) higher commodity prices (no context provided); and 2) access to capital markets before the end of the year (likely a debt issuance to replace private notes, in our view). Beyond this, we are cautiously optimistic that the company will see incremental support from potential asset sales down the road Budget Details: In an attempt to generate incremental funds for debt repayment, PGF elected to deploy limited capital of $125 million, which primarily focuses on optimization (~$60 mln) and maintenance (~$10 mln) on the first commercial phase of Lindbergh, along with continued engineering and design work (~$10 mln) relating to the second phase (still waiting on a funding mechanism; estimated development cost of $600 mln). PGF will then allocate $42 million of capital towards conventional properties, but activities will be limited to asset integrity and maintenance programs (no new drilling expected). While Lindbergh production is expected to grow ~15% to 18 mbbl/d by the end of 2017, total 2017 spending is not enough to offset corporate declines/divestitures, and as such, aggregate production is guided to a range of mboe/d (down ~6% y/y). With the aid of some cost improvement and higher commodity prices (US$55/bbl), management expects to generate $170 million of cash flow, resulting in $45 million of excess funds to be allocated to debt re-payment. Revised Annual Estimates We made the following changes to our estimates to reflect the divestiture. Exhibit 1: Annual Estimates Table PENGROWTH ENERGY - NBF ESTIMATES 2017e 2018e Old New Change Old New Change Production Oil & NGLs (bbl/d) 31,800 29,320 (8%) 32,210 30,420 (6%) Natural Gas (mmcf/d) (3%) (7%) Total 51,000 48,000 (6%) 49,000 46,000 (6%) % gas 38% 39% 34% 34% Financial Cash Flow (mln) $149.4 $130.5 (13%) $236.7 $230.4 (3%) CFPS diluted (13%) (3%) DACF (mln) $254.0 $228.3 (10%) $337.7 $321.2 (5%) per share diluted (10%) (5%) Capital Expenditures (mln) $125.0 $ % $175 $175 0% Net Debt (mln) $1,235 $1,074 (13%) $1,198 $1,043 (13%) Debt/CF 8.3x 8.2x (0%) 5.1x 4.5x (11%) NBF COMMODITY FORECAST WTI (US$/bbl) $57.50 $ % $60.00 $ % AECO (C$/mcf) $2.70 $2.70 0% $3.10 $3.10 0%

3 Page 3 Exhibit 2: Credit Analysis Covenant Calculations Twelve Month Trailing Convenants Q1/17 Q2/17 Q3/17 Q4/17 Q1/18 Q2/18 Q3/18 Q4/18 Covenant Senior Debt 1 before WC to Adj. EBITDA 2.5x 2.8x 3.2x 4.9x 4.5x 4.1x 2.6x 2.4x <3.5x Total Debt 2 before WC to Adj. EBITDA 3.0x 3.0x 3.8x 6.0x 5.4x 4.9x 4.4x 4.2x <4.0x EBITDA to Interest Expense 4.8x 4.3x 3.5x 2.3x 2.7x 3.0x 3.3x 3.5x >4x 1 Senior debt = convertible debentures, letters of credit and finance debt 2 Total debt = senior debt + bank debt Maintaining Sector Perform Rating and /share Target Price Albeit small and dilutive to the model, the transaction is important as it enables PGF to bridge the remaining balance of its 2017 debt maturities. While this is a step in the right direction for the company, we do feel this is over-shadowed by concerns relating to an above-average leverage positon (2017e D/CF of 8.2x), the funding of 2018 debt maturities (C$350+ mln) and the perceived pressures imposed by U.S. private noteholders (in our view, creditors seem to be using a potential covenant breach as a tool to be made whole on outstanding debt). While the outlook is tough, we do believe that PGF can weather the storm, granted it will likely come at the expense of dilutive asset sales and/or a refinancing of debt at a higher coupon. In addition, we are somewhat cautious of the fact that the speculated C$500 mln Infor Olds/Garrington deal may be dead, given a recent press release issued by the company. PGF trades at 2017e EV/DACF of 8.1x on leverage of 8.2x, which compares with the peer group average of 5.9x and 1.5x, respectively. Exhibit 3: Peer Group Comparison Ticker Price Market Cap (mln) Yield EV/DACF Production (mboe/d) % Gas DAPPS Growth Cash Flow Netback Cash Flow Margin D/CF % Drawn Total Net Payout 2017E 2017E 2018E 2017E 2018E 2017E 17/16 18/ E 2018E 2017E 2018E 2017E 2018E 2017E 2017E 2018E BNE $22.55 $ % 6.5x 5.8x % 14% 10% $29.98 $ % 59% 2.1x 1.7x 75% 76% 73% BTE $4.63 $1, % 6.3x 5.8x % 2% 4% $14.35 $ % 36% 5.1x 4.5x 30% 91% 93% CJ $6.85 $ % 7.2x 4.5x % 5% 10% $14.14 $ % 43% 1.4x 0.8x 26% 101% 89% GXE.86 $ % 3.7x 2.6x % 0% 23% $21.77 $ % 51% 0.6x 0.3x 51% 88% 87% GXO $5.49 $ % 7.3x 6.2x % 2% 1% $26.48 $ % 51% 1.1x 0.9x 49% 104% 96% NBZ $3.26 $ % 4.9x 5.4x % -10% 1% $16.74 $ % 41% 3.1x 3.5x 16% 81% 106% RRX $8.77 $2, % 6.3x 5.5x % 25% 15% $41.36 $ % 67% 0.5x 0.2x 35% 92% 75% SGY $2.49 $ % 5.0x 4.0x % 8% 12% $25.99 $ % 57% 1.0x 0.5x 53% 78% 70% SPE $2.53 $1, % 6.1x 4.7x % 28% 22% $31.10 $ % 54% 0.5x 0.0x 35% 61% 62% TOG $6.63 $1, % 5.9x 5.1x % 5% 10% $32.26 $ % 56% 0.8x 0.4x 35% 67% 70% TVE $2.87 $ % 4.0x 3.1x % 4% 15% $25.98 $ % 60% 0.6x 0.3x 47% 87% 82% WCP $10.16 $3, % 7.2x 5.7x % 23% 13% $28.00 $ % 60% 1.1x 0.6x 36% 69% 73% Avg 3.0% 5.9x 4.9x 16% 9% 11% $25.68 $ % 53% 1.5x 1.2x 41% 83% 81% PGF $ % 8.1x 5.6x % 10% -3% $7.45 $ % 29% 8.2x 4.5x 23% 96% 76% We maintain our Sector Perform rating and target price of. Our target price is based on an equally weighted 2017/2018e EV/DACF cash flow multiple of 8.0x (vs. prior 8.4x) that also correlates to our sum of the parts build-up of /share.

4 Page 4 Exhibit 4: Valuation Overview VALUATION OVERVIEW Multiple $/sh Blended 2017/18e EV/ DACF Target Multiple 8.0x Unrisked ValueImplied Risk Fac Risked Value Resource Upside $/sh % $/sh Groundbirch Montney $ % $ Bernadet Montney $ % $ Olds/Garrington Cardium $ % $ Total Resource Upside $891.2 $ % $956.3 $1.70 Base 2P NAV (year-end 2016; pro-forma).30 Target Price Current Share Price $1.37 Return 46% $2.50 Unrisked Upside Risked Upside 2P Blowdown NAV $2.50 $1.50 $1.50 $1.00 $1.70 $ $ Current Price Target Price NAV + Upside.00

5 Page 5 Financial & Operating Summary - Pengrowth Energy Corp. (PGF) Stock / Risk Rating SP / AA Current Share Price $1.37 Target Price 52 Wk. High / Low $2.70 / $1.24 Yield 0.0% Market Cap () $771 Total Return 46% Enterprise Value () $2,011 Production Mix E 2017E 2018E Core Assets Oil & NGLs bbls/d 31,358 24,948 19,499 13,920 12,420 Heavy bbls/d 8,251 15,914 15,585 15,400 18,000 Natural Gas mmcf/d Total BOE/d (6:1) boe/d 73,288 71,409 57,059 48,000 46,000 % Natural Gas % 46% 43% 39% 39% 34% Growth Absolute % -3% -20% -16% -4% PPS % -5% -21% -18% -4% DAPPS % -36% -28% 10% -3% Production Growth 80 Production Absolute Growth PPS Growth DAPPS Growth 20% 70 10% 60 0% % 30-20% 20-30% % E 2017E 2018E mboe/d Netbacks E 2017E 2018E Comparative Metrics 2017E 2018E Revenue $/boe $55.42 $31.41 $26.85 $37.72 $40.50 PGF Peer Avg. PGF Peer Avg. Hedging -$3.64 $16.06 $ $1.75 $1.94 EVDACF 8.1x 5.9x 5.6x 4.9x Royalties -$ $3.43 -$1.92 -$4.60 -$5.13 EV/BOE/d $38,434 $59,366 $39,422 $53,157 Op. Costs -$ $ $ $ $13.25 EV/2P $3.20 $11.60 $3.14 $11.14 Transportation -$1.15 -$1.75 -$1.61 -$1.50 -$1.50 NAV.30 Operating Netback $/boe $25.07 $28.01 $30.84 $16.47 $22.55 P / NAV 4.6x 0.7x G&A -$3.15 -$3.34 -$3.37 -$3.75 -$3.75 Interest -$2.79 -$3.99 -$5.05 -$5.58 -$5.41 Dividend Yield 0.0% 3.0% 0.0% 3.0% Tax D/CF 8.2x 1.5x 4.5x 1.2x Other $ Total Net Payout 96% 83% 76% 81% Cash Flow Netback $/boe $18.90 $17.62 $22.83 $7.45 $13.72 DAPPS Growth 10% 9% -3% 11% Cash Costs -$ $ $ $25.16 Cash Flow Margin 24% 52% 29% 53% Cash Costs (Ex. Hedging) $/boe -$ $ $ $ $28.72 CF Margin (Ex. Hedging) % 41% 5% 8% 24% 29% Decline Rate 15% 26% 15% 25% Capital Efficiency $30,000 $19,938 $31,500 $21,930 Financial Summary E 2017E 2018E FCF Profile Revenue $1,483 $819 $561 $661 $680 Cash Flow $506 $459 $477 $131 $230 CFPS (diluted) $600 DPS (basic) $400 Capital Expenditures Total DRIP -$904 -$847 -$184 $2 -$21 -$64 -$35 -$125 $281 -$175 -$199 (Acquisitions) / Dispositions Dividends FREE CASH FLOW $57 -$254 -$651 $186 -$101 $153 $29 $412 $406 $6 -$24 $55 $200 -$200 -$400 DRIP Participation % 0% 0% 0% 0% 0% Dividend Payout 50% 22% 0% 0% 0% Capex Payout 179% 40% 14% 96% 76% Total Payout 229% 62% 14% 96% 76% Total Net Payout 229% 67% 14% 96% 76% (Cdn$ mlns) -$1,000 Net Debt $1,923 $1,935 $1,486 $1,074 $1,043 -$1, x D/CF 3.8x 4.2x 3.1x 8.2x 4.5x Cash Flow Capex Dividend DRIP FCF D/CF -$1, x Credit Facility $1,050 $1,050 $1,050 $1,050 $1, E 2017E 2018E % Drawn 1% 10% 0% 23% 54% Quarterly CFPS (diluted) E 2017E 2018E Reserves E Q Q Volume % mmboe % mmboe % mmboe % mmboe Q PDP 39% % % % 115 Q Proved 39% % % % 285 Annual P 100% % % % 608 Quarterly Production (boe/d) E 2017E 2018E Growth Q1 75,102 69,334 62,057 50,000 46,000 PDP -22% -10% -34% Q2 73,824 74,113 56,735 48,000 46,000 Proved -22% 67% -29% Q3 72,472 74,239 55,137 47,000 46,000 2P -7% 17% 2% Q4 71,801 67,933 54,356 47,043 46,000 RPS (2P) 0% Annual 73,288 71,409 57,059 48,000 46,000 DARPS (2P) -33% Commodity Price Assumptions E 2017E 2018E Replacement Costs WTI Crude oil (US$/bbl) $93.01 $48.74 $43.22 $57.50 $60.00 FD&A Ex. FDC (PDP) $ WCS(C$/bbl) $80.86 $45.33 $39.07 $55.10 $56.00 FD&A Ex. FDC (Proven) $ Canadian Par (C$/bbl) $94.43 $57.35 $52.71 $71.70 $73.40 FD&A Ex. FDC (P+P) $ NYMEX gas (US$/mcf) $4.42 $2.63 $2.55 $3.00 $3.25 AECO Basis (US$/mcf) $-0.44 $-0.62 $-1.01 $-1.00 $-0.90 Recycle Ratio Ex. FDC (PDP) 0.2x - AECO gas (C$/mcf) $4.38 $2.56 $2.05 $2.70 $3.10 Recycle Ratio Ex. FDC (Proven) 0.7x - Exchange Rate (US$/C$) Recycle Ratio Ex. FDC (P+P) 2.4x - Source: Company reports, Bloomberg, NBF estimates -$600 -$ x 7.5x 5.0x 2.5x 0.0x PGF EV/DACF +/- 1 Std. Dev. LT Avg NBF 2017e Peer Avg. 9.0x 8.0x 7.0x 6.0x 5.0x 4.0x 3.0x 2.0x D/CF

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7 Page 7 NBF quarterly ratings summary and the total ratings by month can be found on our website under Research and Analysis/Equities/About NBF Research/Quarterly Ratings Summary (link attached) The NBF Research Dissemination Policy is available on our website under Legal/Research Policy (link attached) Click on the following link to see the company specific disclosures Click on the following link to see National Bank Financial Markets Statement of Policies If a company specific disclosure is not found herein for a listed company, NBF at this time does not provide research coverage or stock rating for the company in question. ADDITIONAL COMPANY RELATED DISCLOSURES Disclosures for Dan Payne s Company Coverage Disclosures for Brian Milne s Company Coverage Disclosures for Travis Wood s Company Coverage AAV 6,7,10 BTE 2,3,4,5,6,7 ARX 6,7 BIR 2,3,4,5,6,7 GXE 2,3,4,5,6,7 BNP 2,3,4,5,6,7 BNE 6,7 GXO CPG 2,3,4,5,6,7 BXE 2,3,4,5,6,7 NBZ 6,7 ERF 2,3,4,5,6,7 CJ 2,3,4,5,6,7 * PGF 6,7 FRU 2,3,4,5,7 CKE 6,7,10 POU 6,7 PEY CR 6,7 RMP 2,3,4,5,6,7 PSK 2,3,4,5,6,7 KEL 2,3,4,5,6,7 TET VET 6,7,10 LXE 6,7 VII 2,3,4,5,6,7 MQX 6,7 ** WCP 2,3,4,5,6,7 NVA 6,7 PNE 2,3,4,5,6,7,10 PPY RRX 6,7 SGY 2,3,4,5,6,7 SPE 2,3,4,5,6,7 SRX 6 TOG 2,3,4,5,6,7 TOU 2,3,4,5,6,7 TVE 2,3,4,5,6,7,12 LEGEND FOR COMPANY RELATED DISCLOSURES: 2 National Bank Financial Inc. has acted as an underwriter with respect to this issuer within the past 12 months. 3 National Bank Financial Inc. has provided investment banking services for this issuer within the past 12 months. 4 National Bank Financial Inc. or an affiliate has managed or co-managed a public offering of securities with respect to this issuer within the past 12 months. 5 National Bank Financial Inc. or an affiliate has received compensation for investment banking services from this issuer within the past 12 months. 6 National Bank Financial Inc. or an affiliate has a non-investment banking services related relationship during the past 12 months. 7 The issuer is a client, or was a client, of National Bank Financial Inc. or an affiliate within the past 12 months. 8 National Bank Financial Inc. or its affiliates expects to receive or intends to seek compensation for investment banking services from this issuer in the next 3 months. 9 As of the end of the month immediately preceding the date of publication of this research report (or the end of the second most recent month if the publication date is less than 10 calendar days after the end of the most recent month), National Bank Financial Inc. or an affiliate beneficially own 1% or more of any class of common equity securities of this issuer. 10 National Bank Financial Inc. makes a market in the securities of this issuer, at the time of this report publication. 11 A partner, director, officer or research analyst involved in the preparation of this report has, during the preceding 12 months provided services to this issuer for remuneration other than normal course investment advisory or trade execution services. 12 A research analyst, associate or any other person (or a member of their household) directly involved in preparing this report has a financial interest in the securities of this issuer. 13 A partner, director, officer, employee or agent of National Bank Financial Inc., is an officer, director, employee of, or serves in any advisory capacity to the issuer. 14 A member of the Board of Directors of National Bank Financial Inc. is also a member of the Board of Directors or is an officer of this issuer. 15 A redacted draft version of this report has been shown to the issuer for fact checking purposes and changes may have been made to the report before publication. * National Bank Financial Inc. acted as financial advisor to Craft with respect to the Cardinal Disposition. Where Craft Oil Ltd. has entered into a definitive agreement with Cardinal Energy Ltd. to sell assets for $41 million, consisting of approximately $4.0 million in cash and approximately 4.0 million common shares of Cardinal at a deemed price of $ per Cardinal Share.