E&P Co. Has 90% Potential Upside, Analyst Says

Cormark Securities analyst Garett Ursu shared coverage on New Stratus Energy Inc., giving it a Buy rating.

Cormark Securities analyst Garett Ursu shared coverage on New Stratus Energy Inc. (NSE:TSX.V) in a January 16 research note with a Buy rating and CA$1.50 price target. New Stratus is a micro-cap international E&P focused on a “uniquely structured” deal to redevelop stranded oil assets in Venezuela.

Financial Results and Projections

The analyst models 2023 funds flow of negative CA$15.4 million, improving to $27.6 million by 2025. Production is estimated to be 700 boe/d in 2024, reaching 1,274 boe/d in 2025.

For 2024, Cormark forecasts “operating netbacks” above CA$174 per BOE and “cash flow netbacks” of CA$76.75 per BOE, which would “rank at the top” of the firm’s E&P coverage universe. The outlook is for positive free cash flow generation beginning in 2025.

Venezuela’s Undercapitalized Resources

Both Mexico and Venezuela represent massive stranded oil resources from industry mismanagement and underinvestment.

Recent sanctions relief enables experienced operators to profitably redevelop assets avoided by most companies, the analyst said.

Transformational Venezuela Agreement

New Stratus holds a 50% stake in a JV with GoldPillar, itself owning 40% of fields with rights held by Venezuela’s state oil firm. The analyst noted that this structure insulates from political risk while positioning New Stratus to generate E&P, marketing, procurement, and financing income.

An initial 90-well workover program begins immediately, targeting over 5 billion barrels of oil in place, the report stated.

Valuation & Upside

With material near-term production growth expected and over 60 million barrels of recoverable resources outlined, analyst Ursu sees the risk-reward as compelling. His CA$1.50 target represents a 90% upside potential.

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1. As of the date of this article, officers and/or employees of Streetwise Reports LLC (including members of their household) own securities of New Stratus Energy Inc.
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Disclosures for Cormark Securities Inc., New Stratus Energy Inc., January 16, 2024

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( Companies Mentioned: NSE:TSX.V, )