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Highpine Was An “Early Mover” In The Area
In View Of Knowledge Gained From The Initial Exploration Discovery And
Seismic Data Shot, Enabling The Company To Capture A Large Portion Of The
Nisku Resource Trend - Which Has A Lot More High Netback, Light Oil Pools
Still Waiting To Be Found That Will Propel Continued Growth For Highpine
Shareholders In The Years To Come
Energy
Oil & Gas Exploration
Analyst Interview Featuring:
Highpine Oil & Gas Limited (HPX-TSX)
Suite, 4000, 150-6th Avenue S.W.
Calgary AB Canada T2P 3Y7
Phone: 403-265-3333
Kim Page
Director – Energy Research
Wellington West Capital Markets, Inc.
Phone: 416-847-3400
Interview conducted by:
Lynn Fosse, Senior Editor
CEOCFOinterviews.com
Published – August 8, 2008
BIO:
Kim Page
– Director – Energy Research
Wellington West Capital Markets Inc.
Kim has been involved in energy
equity research with leading Canadian brokerage firms including RBC Capital
Markets, BMO Nesbitt Burns, Cormark Securities (formerly Sprott Securities),
and First Associates. Kim has over 15 years experience, including corporate
lending within the CIBC Oil & Gas Group (Calgary, Alberta). Kim holds an
Honours Bachelor of Science (Earth Sciences) degree from the University of
Waterloo, (Waterloo, Ontario).
Wellington West Profile:
Wellington West Capital Markets
Inc. (WWCM) is a wholly owned subsidiary of Wellington West Holdings Inc.,
and an affiliate of Wellington West Capital Inc. (WWCI). WWCM is an
institutional equities firm focused on providing value-added equity research
ideas combined with strong execution in trading and corporate finance for
small and mid-cap companies.
WWCI was founded in 1993 by one of Canada’s top investment advisors, Charles
Spiring. Charlie walked away from a successful career at a major financial
institution in order to create a top-quality, local investment boutique.
Charlie’s vision was to create a brokerage owned by brokers. He was
committed to selecting only the best and brightest talent in the
industry—people who lead and inspire their communities.
Over the past 15 years, WWCI has become one of the largest and
fastest-growing independent full-service investment firms in Canada. Today,
we have more than 40 offices and 500 employees and nearly $10 billion in
client assets under administration. With our full-service brokerage at the
core, we have expanded our team of partners to include an award-winning
capital markets group, a cross-country network of financial planners and a
growing asset management division.
Company
Profile:
Highpine is a Calgary-based oil and natural gas
company engaged in exploration for and the acquisition, development and
production of natural gas and crude oil in western Canada. Highpine's
current exploration and development efforts are focused in the West Pembina
Nisku and West Central Alberta Gas Fairway, both located in Central Alberta.
The company's class A common shares trade on the Toronto Stock Exchange
under the symbol "HPX".
CEOCFO: Mr. Page, please tell us about the
universe that you cover and why you have included Highpine Oil & Gas
Limited.
Mr. Page:
“I cover small to mid capitalization energy producers, contract drillers and
specialty oilfield service companies. Highpine Oil & Gas Limited fits into
the group because we are looking for companies that have extensive resource
opportunities; either known resource trends with high netback reserve
potential or properties with good exploration prospects in known prolific
producing areas, enhancing probability of scaleable operational growth to
create shareholder value. We are very interested and keen on the Nisku in
West Central Alberta in which Highpine is by far the largest producer and
landholder.”
CEOCFO: Why do you like that geographic
area and Highpine’s projects?
Mr. Page: “The area is a massive reef
complex containing numerous large light oil and gas pools. The initial
discovery in the oil prone portion of the resource trend was approximately 8
years ago, and there have been over 30 new pools discovered since. It was
the advent of technology and the refinement of 3D seismic imaging of these
Nisku pools that has increased Highpine’s discovery success rate to over
60%.”
“The Nisku barrier reef complex itself is over
100 miles long and 40 miles wide, and development and exploration of the
play is still in the infancy stage. Individual Nisku pools within this
regional reef complex have been found trapped along the up dip sub-crop edge
of the reef, as well as in inter-tidal channels in the back-reef. Individual
wells have very high deliverability, with average wells capable of 1,000 boe/d
and reserve size of 1 million barrels of oil equivalent (boe).
Interpretation of regional 3D seismic covering the majority of the trend
reveals over 50 independent pool targets left to drill, and Highpine
maintains over 100 drilling locations on owned lands for further
exploration/development over the next several years.”
“Highpine was an “early mover” in the area in
view of knowledge gained from the initial exploration discovery and seismic
data shot, enabling the company to capture a large portion of the resource
trend. Highpine now holds approximately 250,000 acres, 80% of which remain
unexplored. In view of this, we believe the trend has a lot more high
netback, light oil Nisku pools still waiting to be found, which will propel
continued growth for Highpine shareholders in the years to come.”
CEOCFO:
What is your assessment of the Highpine management team?
Mr. Page: “We think that good management
for any energy production company is critical in view of the high rate of
capital deployment needed for exploration and development activities. The
management of Highpine has undergone a change recently. The formulation of
the company was originally as a private company. When it got going with the
Nisku project it realized that the scope of the project required it to raise
significant amounts of capital to capture the opportunity and then to
develop it.
Therefore, they went through an IPO process several years ago and over the
past year have gone through a transformation in the senior management role.
Highpine has retained a lot of the key operating people, but made a change
at the President and CEO level, bringing on Jonathan Lexier, formerly Chief
Operating Officer of NAL Resources and previously at various positions with
Mobil Oil Canada, Ltd. from 1980-1999. We think that this is a very positive
change. We liked the former CEO, but we think that Jonathan’s ability to set
achievable goals and provide incentives for his team to move the company
forward strategically is going to be a real asset for Highpine.”
CEOCFO: What is the financial picture
for Highpine today?
Mr. Page: “The financial picture is
extremely strong because of the company’s light oil production. For example,
in the 2nd Quarter of 2008 we are expecting the company will
further reduce its debt to the $65 million range (from ~$135 million in
Q1/08) as cash flow for the quarter approaches $100 million, resulting in an
annualized Debt/CF ratio of just 0.2x. We forecast the company will generate
cash flow of $400 million in 2009 based on modest growth expectations from
21,000 boe/d this year to 24,500 boe/d next year, leaving tremendous spare
financial capacity for significant acquisitions.”
“Highpine is one of the stocks that we are
highlighting as a way to benefit from still very robust light oil prices.
The strength in light oil prices is generating a lot more value than what
the markets are giving the company credit given a current Enterprise Value
to Debt Adjusted Cash Flow (EV/DACF) trading multiple of just over 2x our
2009 forecasts.”
CEOCFO: What is your recommendation and
target for Highpine?
Mr. Page: “We have a Strong Buy rating
on the company and a $25.00 target as of today.”
CEOCFO: In closing, why should people be
interested in Highpine today?
Mr. Page: “They have created a lot of
value in delivering consistent per share growth in production and reserves
while preserving a healthy balance sheet. Ownership and development of the
Nisku trend has been a major contributor to this value creation to date, and
I expect it will continue to be in the future, given a very early stage of
exploration of the trend. We think that there is a lot of high netback
resource yet to uncover on this trend, as well as in other core operating
areas. It is a combination of high netback, high productivity reserves
discovered to date, the number of remaining prospective targets on
Highpine’s lands, and the extremely low valuation which, in our view, makes
Highpine an extremely attractive investment opportunity.”
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