Elevated Debt Levels Keep Barclays Cautious On Pengrowth Energy

Pengrowth Energy Corp (USA) PGH provided an updated reserve assessment for its Lindbergh oil sands asset, following the approval of expansion.

The company announced that proved reserves grew 43 percent from year-end, while P+P reserves grow 21 percent.

“The uplift largely reflects a reclassification from contingent resources, as the firm’s independent reserve engineer has now awarded credit for the expansion of the project to 30,000 bbl/d following regulatory (EPEA) approval on May 30th, 2016,” Barclays analyst Grant Hofer mentioned.

In addition, the increase was driven by the ongoing positive performance of the project, as well as additional reserves related to future infill wells and the cyclic steam simulation area. In fact, recoverable resources grew 8 percent to 392 mmbbls.

Consequently, contingent resources shrank, with Pengrowth Energy’s contingent reserves estimates declining 25-30 percent, reflecting the reserve shift.

Cautious Stance

“We remain cautious given elevated debt levels along with declining production volumes and diminishing hedge support over time,” Hofer stated.

“We appreciate management’s discipline and shift toward a lower decline asset base, but the financial and operational leverage are a meaningful headwind, especially as Pengrowth continues to trade among the most expensive stocks in our coverage universe,” the analyst went on to explain.

Hofer maintained an Underweight rating on the company, with a price target of C$2.

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