Company: Novus Energy Inc
Sector: Energy E&P
Market Cap (M): $169 (Fully Diluted at $212 Million)
Website: http://www.novusenergy.ca/
Company Profile:
Novus’ strategy is acquisitions in high netback properties, along with organic growth through the drill bit. They target:
- Light oil resource plays with significant original oil-in-place
- Application of horizontal multi-stage fracture technology to increase oil recovery
- Focus on well delineated, low geological risk reserves
- Lands to possess large aerial extent to support large-scale, repeatable drilling programs
Novus is targeting resource plays, primarily light oil, in the Viking and Cardium. These are low geological risk reserves with large original oil in place. Drilling in 2012 continues to be focused in the Dodsland Viking, in SW Saskatchewan. The Viking is a highly delineated reservoir with low geological risk. Production is high netback, light oil and drilling costs are lower than comparable plays due to the shallow depth of 750 metres. As of February 2012, Novus has 119 Sections in the Dodsland Viking, and 610 risked drilling locations, which downspaced to 16 wells per section (as other competitors in the area have successfully done), could increase to 1220. Average Viking well EURs for the company were increased to ~45,000 boes/well providing a solid base for increased production. The Cardium offers high-impact drilling opportunities for light oil. Novus’ drilling program is concentrated at Wapiti, Alberta in 50% – 80% working interest wells.
Fundamental Analysis:
In 2012, Novus is forecasting an average of 3,300 boe/d of production, 84% oil and liquids weighted, with an exit of 4,500 boe/d weighted 85% towards oil and liquids. Novus also has a Reserve Life Index of 14.0 years on a proved plus probable basis and 8.5 years on a proven basis.
Novus’ NAV/Fully Diluted Share is $1.64. Book value is $0.69 per share, and the P/E is currently only 16.7x, which considering the company’s growth profile and take-out potential, seems relatively cheap. It should also be noted that in the last year, there has been insider buying of over $500k in stock.
With an enterprise value of around $230 million, they are currently trading at only $51k / flowing boepd based on expected 2012 exit production, which is significantly less than other juniors in the area.
The company’s balance sheet is also relatively clean. Forecast net debt to cash flow at year end 2012 is only 1.2 times.
I do wonder about some of their land position though, as some sections appear on the outside edge of the Dodsland play, and may not achieve the same results as more players with more centralized core positions.
Technical Analysis:
With a recent bearish trend, I expect some psychological support around the $1.00 mark, and further support around $0.80. Resistance is around $1.10. Watch for the 50 day to cross over the 200 day as a bullish indicator. RSI is high, and MACD recently crossed to the downside.
Seasonality:
According to EquityClock, the seasonality trend for Oil E&Ps begins around January 30th and ends around April 13th. Though a little late on this buy, it is still very prospective.
Analyst Expectations:
Novus’ February 2012 presentation, available on their website, shows the following analyst projections:
Canaccord Genuity -Buy -$1.50 -February 8, 2012
CIBC World Markets -Sector Perform – $1.30 -February 8, 2012
Cormark Securities Inc. – Buy – $1.60 – February 8, 2012
Desjardins Securities – Buy – $1.75 February 9, 2012
Fraser Mackenzie – Strong Buy – $1.40 – February 8, 2012
GMP Securities L.P. – Buy – $2.00 – February 8, 2012
Haywood Securities Inc. – Sector Out Perform – $1.55 – January 11, 2012
Northland Capital – Sector Out Perform – $2.00 – February 9, 2012
Paradigm Capital – Buy – $1.50 – February 9, 2012
Raymond James Ltd. – Out Perform – $1.50 – February 9, 2012
Stifel Nicolaus – Hold – $1.20 – February 8, 2012
TD Securities – Buy – $1.70 – February 9, 2012
Obviously, the analysts see a lot of upside to this company, with projected price increases from 20% to 100%.
Trading Strategy:
I like this stock as a 1-2 year hold. I think the $1.00 mark is a good place to begin accumulating a position, but given the overall bearish trend in the last 2 weeks, I will likely buy only 30-50% of my total expected position now. If the stock breaks down to $0.80 I will buy a stronger position, and if strong support is shown around the $1.00 will look to continue buying on the way up.
