Synergy Resources Target Price $12

Target: US$12.00

Synergy Resources Corporation is a domestic oil and natural gas exploration and production company with over 40,000 net acres in the Denver-Julesburg Basin, as well as 180,000 net acres in East CO/West NE. The Wattenberg Field in the DJ Basin ranks as one of the most productive fields in the U.S. Synergy’s corporate offices are located in Platteville, Colorado.

Assuming coverage; maintain BUY rating, increase price target We assume coverage of Synergy Resources (SYRG : NYSE MKT) with a BUY rating and $12 price target. As we eagerly await the first Hz Niobrara results in the very near term, we believe SYRG offers attractive risk/reward exposure to a small-cap pure-play Niobrara stock. Based on a detailed production-based wedge model and NAV construct, we maintain our BUY rating and raise our price target from $9 to $12. Our bull case NAV of $13.50 incorporates attractive optional value from the NE Extension area.
Pad drilling of multiple benches indicates steep production growth SYRG has gathered substantial well control through more than 135 operated vertical wells drilled in the Wattenberg. In addition, SYRG operates more than 80% of its net Wattenberg wells and is a fast follower of its non-operated partners that are far ahead in the Niobrara life cycle.

All of these are reflected in management’s 20-well program for 2014 ahead of the first results. Surrounding acreage actively derisked by neighbors Even though SYRG is early in Hz Niobrara, its acreage is in the right zip code, as PDCE and NBL are actively drilling in the vicinity. In a steep learning curve environment, non-op activity with these E&Ps is giving SYRG exposure to Hz development. In addition, SYRG’s veteran DJ Basin management team has the ability to guide the company through early derisking of the Niobrara.
Valuation and risks
Our price target is derived from a NAV model that incorporates our in-house commodity price deck. We build wedge models specific to the play, well type (Hz/vertical), and drilling program to forecast prod and value 2P reserves. We acknowledge infrastructure and commodity price as key risks for SYRG to miss our 12-month price target.


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