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TORC Oil & Gas Initiated At 'Sector Outperformer' By CIBC, $3.50 PT

 December 04, 2012 01:59 PM


(By Balaseshan) CIBC World Markets Inc. analyst Adam Gill initiated coverage of TORC Oil & Gas Ltd. (TSE: TOG) with a "sector outperformer" rating and $3.50 price target.

Gill said TORC is a junior E&P focused on two tight oil plays in west central and southern Alberta. The core development play is the Cardium Trend, which will attract the bulk of the 2013 capital budget.

The other opportunity is the Alberta Bakken, which is in its early stages, but has sizable potential, the analyst noted. TORC is a combination of the old TORC and Vero Energy that consolidated TORC's position in the Cardium.

Gill said TORC's management team has a solid track record of providing value creation for shareholders, most recently selling Result Energy at a 50% premium to its last financing before acquisition.

[Related -Dry Powder Doesn't Pay]

The company has a solid financial position heading into 2013, exiting 2012 with a cash position of over $40 million. Given a solid netback on development drilling, the analyst expects a relatively lower draw on the bank line in 2013, exiting the year with discounted cash flow at 0.6 times versus the group at 2.3 times.

Gill said TORC trades at 9.4 times his 2013 equity value/debt-adjusted cash flow (DACF) estimate and 82% of his risked net asset value versus the group averages of 7.3 times and 83%, respectively.

TOG is trading down 2.61% at $2.24 on Tuesday.

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