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Imperial Capital’s Kim Pacanovsky believes that with Niobrara offering lower returns than Permian, further multiple expansions for Synergy Resources Corp (NYSE: SYRG) are unjustified, especially given the currently uncertain commodity environment.
Pacanovsky downgraded the rating on the company from Outperform to In Line, while lowering the price target from $7.50 to $6.50.
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Multiple Expansion Unjustified
“We believe that SYRG’s premium trading multiples on an EV/EBITDA basis, which rival those of many Permian participants, do not justify an Outperform rating,” the analyst said.
Although the $505 million acquisition has transformed Synergy Resources into a key Wattenberg Field operator, expectations of the company entering 2017 with a one-rig program, low IRRs at the current crude pricing and tight liquidity do not justify Permian level multiples for the stock.
2Q16 Production Declines
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As part of its operations update, on July 28, the company reported its 2Q16 production guidance at 11,098boe/d, representing a 7 percent decline compared to the consensus expectations.
“Production was down quarter over quarter because of offset operator completion activities that required temporary shut-ins and also higher line pressure,” Pacanovsky said.
LOE of $6.77/boe was ahead of expectations, driven by unexpected environmental remediation work at recently acquired properties.
Pacanovsky expects the 14 mid-length lateral well, Fagerberg Pad, to be put through completion operations in mid-August, which could lead to a meaningful production boost in 4Q16, although with negative production growth in 3Q16, as compared to 2Q16.
The 2016 EPS and EBITDA estimates have been lowered.
At time of writing, Synergy was down 1.57 percent at $6.27.
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New research shows the biggest crypto buyers are back. And this time? They could hold for the possibility that Bitcoin will surpass $100,000 in 2024. You don’t want to miss the next massive crypto bull run like we saw in 2020 and 2021. To know exactly what’s going on and what to buy… Get Access To Benzinga’s Best Crypto Research and Investments For Only $1.