Equal Energy ltd disclosed mixed second quarter results on Thursday. Company reiterated production outlook. In spite of delays at Alliance and Lochend, the firm reiterated its second half production outlook of 11,298 to 11,795 BOE per day. We noticed that after acquiring Hunton, second quarter production of 9,467 BOE per day (45% natural gas) remained in-line with our forecast. Cash flow per share $0.47 was in-line with our forecast of $0.49.
Having 60% of production from Oklahoma, company is not open to the elements to the same degree as other western Canadian operators. We see this optimistically as multiple other operators have downgraded estimates because of wet weather and wildfires. We see that Hunton program remained on track. Till date in 2014, 3 horizontal wells have been drilled and placed on production in the Twin Cities Central Dolomite (TCCD) region. Hunton horizontal wells usually show increasing production rates eventually as water is removed. We also reviewed that Mississippian offered a free option.
In Alfalfa county, company is drilling 7 well vertical Hunton program. Even if not liquids rich, the vertical wells have the advantages of maintaining mineral rights in the Mississippian oil play. After finished, the firm will own 31 net sections likely for Mississippian light oil. In second quarter, the firm fetched two Viking light oil wells and plans to drill up to 4 wells in second half. We see that 1 cardium well was got on stream in May while 2 cardium wells were drilled in first half and additional is in second half’s plan.
Currently the firm is trading at 0.6 times 2P NAVPS compared to the competitor group avg. at 1.2 times, because of larger-than-average leverage and a less growth outline. We reiterate our “Sector Perform” rating and set target price of $9.50 per share.