Raging River Exploration Inc

RRX : TSX : C$7.95  
BUY  Target: C$9.00

COMPANY DESCRIPTION: Raging River Exploration Inc. is a junior E&P company focused on the development of the Viking light oil resource play in Saskatchewan.

Energy — Oil and Gas, Exploration and Production INCREASED GUIDANCE AND NEW FARM-IN ACREAGE
Investment recommendation

Raging River announced fourth quarter results and an operational update which was highlighted by continued momentum in the first quarter, a new 100 section farm-in transaction, and increased guidance given a capital spending increase related to new farm-in well plans.  Overall, the release was positive and reinforces our positive view of the stock. The increased inventory and growth related to the farm-in adds $0.40 of value to our NAV and a commensurate $0.50 per share increase to our target to C$9.00, which is based on an unchanged 1.1x multiple to NAV and a 9.1x EV/DACF multiple.
Investment highlights Step out success at Forgan. Assuming its new wells track a Tier 6 curve and one of its six wells at Forgan was drilled on a section with no prior inventory assigned and the other five were on sections with a prior Tier 4 assignment, we estimate the value uplift from its step out success year- to-date to be ~$65 million.
Surging forward with a new farm-in. Raging River announced a farm-in transaction with an industry partner on 100 (95 net) sections at Dodsland. Based on its updated presentation, we suspect the farm-in was on Surge Energy (SGY: TSX, BUY, covered by Anthony Petrucci).  The transaction is positive as it adds ~60 low to medium risk drilling opportunities and potential upside to 360+ locations upon success.
Guidance gets a lift.  2014E CAPEX increases by $20 million to $235 million with a commensurate increase to average and exit production rates implying incremental capital efficiency of ~$40,000/boepd.
Valuation Raging River currently trades at a 0.9x multiple to CNAV estimate, 8.4x EV/DACF, and $157,500/BOEPD based on our 2014 estimates vs. its peer group averages of 0.7x CNAV, 6.7x EV/DACF, and $83,200/BOEPD


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