Ed's Thread

[Ed Monton]

Research Capital - $1.45 target

OIL & GAS
TARGET PRICE: C$1.45; PROJECTED RETURN: 164%

JACKY EXPECTED TO BE ON STREAM BY MONTH END

EVENT – YEAR-END RESULTS AND RESERVE UPDATE
Ithaca announced year-end financial results and updated oi l and gas
reserves. The company exited 2009 with cash of US$39.2 mi l l ion ($47.9
mi l l ion). Year-over-year, proven plus probable reserves increased 9.5%
to 28.7 mi l l ion boe.
HIGHLIGHTS
Slight Y/Y increase in reserves: After accounting for the sale of assets
to Dyas and the sale of the Barbara field, estimated reserves increased
by 9.5% to 28.8 mi l l ion barrels. The NVP10 after-tax value was
US$357.7 million ($420.0 mi l l ion).
Year-end cash of US$39.1 mi ll ion: As at December 31, 2008, Ithaca
had US$39.1 million ($47.9 mi l l ion) of cash. Netting out the US$60
mi l l ion ($73.4 mi l l ion) convertible loan from Dyas, we calculate net debt
of US$20.8 mi l l ion ($25.5 mi l l ion). Note that Dyas has an opt ion to
convert the loan for an addit ion 15.15% interest in Ithaca’s portfolio of
assets.
Net production to increase to 7,000 bbl /d: First product ion from the
Jacky field is anticipated to commence on or about the end of March
2009. Combined with current product ion from the Beatrice field, we
expect that Ithaca’s product ion wil l increase to 7,000 bbl /d.
VALUATION – SMALL INCREASE TO RISKED NAV
Our risked net asset value is based upon the estimated proven and
probable reserves adjusted for net working capital or debt, plus risked
potential for near-term exploration drilling. Based upon the updated
reserve report , our risked net asset value increased slightly from
$1.43/fd share to $1.48/ fd share.
RECOMMENDATION – MAINTAINING BUY AND $1.45 TARGET PRICE
Given the weak financial markets, Ithaca plans to fund i ts 2009 and
2010 operations with its existing cash resources, cash f low, and
selective farm-outs. Ithaca’s stock price has appreciated recently with
the price of crude, and after the Jacky field is placed on stream in early
April , net oil production should increase from approximately 2,000 bbl /d
to 7,000 bbl /d. We maintain our BUY recommendation and $1.45 target
price, equivalent to a 1x multiple of our fully-diluted net asset value
estimate.
VALUATION CATALYSTS – FIRST PRODUCTION FROM JACKY, THE
STELLA APPRAISAL WELL, AND OIL PRICES
The near-term catalyst is the initiation of first product ion from the Jacky
field. In September 2009, Ithaca expects to spud the Stella appraisal
well (49.8% W.I .). A recovery in the price of oil could also move the
stock higher.