Long Run Exploration Ltd.

LRE : TSX : C$5.21
Target: C$7.00

Long Run Exploration is a junior oil & gas explorer with assets focused largely in Alberta. Long Run is listed on the TSX under the symbol “LRE”
All amounts in C$ unless otherwise noted.
Our target is NAV based and maps to a 2014E EV/DACF of 4.3x.



Investment opinion
On Friday after the close Long Run announced the acquisition of 1,500 boe/d of production in Alberta for $55 million. While details on the acquired assets are limited at this point, the acquisition metrics appear very attractive, and the company benefits from an increased presence in its key Peace River and Edmonton areas. Along with the acquisition, LRE’s operational update highlighted the company is on track to meet its annual guidance target (pre-acquisition and disposition) for 2013. Overall a positive update for LRE which we expect will see the stock strong in trading today.
Investment Highlights
 The Acquisition. LRE announced an acquisition of 1,500 boe/d of production in Alberta (Exhibit 2), including 133 net sections of land and associated infrastructure, for $55 million from a ‘senior independent energy company’. The all-in cost of ~$37,000/boe appears very attractive, particularly given it is 60% weighted to light oil, with a decline rate of just 15%. Specifics on the acquired assets were few, but the company indicated it would provide further details upon the closing of the transaction in mid-October. In the same release the company announced that it also completed a small disposition of 300 boe/d in Saskatchewan for $13 million.
 Updated 2014 Estimates. As a result of the transaction our production estimates for 2014 increase from nearly 26,700 boe/d to ~28,100 boe/d (Exhibit 1), and our CFPS increased by $0.09, to $2.20. On top of the funds from the disposition, the transaction was funded with debt, and as a result we now expect the company’s net debt position at year end to be $367 million on a $450 million bank line. Based upon our 2014 estimates this modestly increases the company’s debt to forward cashflow from 1.2x to 1.3x, still well below the peer group average


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