don't read this wobbly

For the rest of you who are interested with what analysts have to say, interesting tidbits here in euroz's latest update - wells back on line, non- op wells, increased funding, lower well capex.

"Price Target: $1.77/sh

Investment Case

The underlying operational performance and asset quality continue to be highlighted by the most recent operational update.  Despite weather outages, the steady introduction of new wells combined with operational enhancements is seeing strong production growth (currently gross av. ~2,400boepd a 20% inc. month-on-month). Growing reserves and production will in-turn increase RFE’s funding capacity. Beyond which, upside to the RFE story lies with improved resource recovery through development spacing and Woodford oil shale development. Buy.

Key Points

May av. gross production was significantly impacted by weather resulting over half of RFE’s producing wells being off-line at some point in the month.

Production average inclusive of downtime was flat month-on-month at 1,800boepd (gross).

Notably, allowing for weather related outages, the field delivered an average production rate of 2,357boepd (1,800boepd net pre-royalty), up some +30% from April.

We understand the majority are now back on-line and current av. gross rate stands at ~2,400boepd (up from 2,000boepd rate at last report date).

4 new wells were added in the month; 39 gross hzntl wells in 8 (of 10) dev. areas.

Spud to sales cycle times continue to fall; recent average of <50 days and as low as 39 days.

The Company expects to increase availability and size of current US$65m RBL facility in the Jun Q.

Analysis

The continued growth in production from RFE’s Mississippian operations provides further endorsement of both the asset quality and the dramatic improvement to operational execution RFE’s operations team has achieved in the past 6mnths.

The Company is completing behind drilling and this, combined with improvements to completions design and reservoir management, is seeing sizeable increases in production rate, month-on-month.

May averaged 1,800boepd – despite significant weather related outages – and with current rates averaging ~2,400boepd, comfortably tracking the guided 3,400boepd CY exit rate.

And we are seeing consistent improvements to peak and 30-day IPs.

Improving spud-to-first-sales cycle times - recent wells are already converging on the Company’s aspirational target of 45 days – should see marked increases to operating cash flow over the coming Qs.

Additionally, improving spud to rig-release times av. 17 days (vs 26 prev.) will have a positive downward impact on gross well capex (EZL est US$3.2m) going fwd.

We understanding RFE will participate in at least 12 non-op wells with DVN alone this CY, including tests of the underlying Woodford Oil Shale.

As per the recent DVN Mar Q’ly conference call, the Company has been consistently delivering IPs of 600-1000bbls of oil (plus NGL rich gas) from its recent Mississippi programme, focused in acreage coincident with RFE.

RFE – where pooled with DVN – has the opportunity to review DVN’s operational techniques (for it is in DVN’s interests ie where RFE operate on their behalf) and we expect some of these key learnings to applied immediately to the current programme. 

We watch the results from June (Jekyll and Hyde – 1H et al) with interest on this basis.

The Company has guided that it will likely increase the size and the available borrowing base (currently US$20m) of its US$65m (@ 3.25%) RBL facility this Q. 

We expect that with at least 20 new wells completed this H, this should provide increased access of up to US$50m by Jun 30 and likely more (circa US$70m) early in the new FY from an increased facility size (say +US$150m).

This would allude to a material increase in the Company’s 1 and 2P reserve position come next statement as a function of the reserve engineers (and thus lenders) acknowledging the de-risking effect of spreading development throughout 8 (of 10) development areas. 

It would also be reasonable to anticipate recognition of a significant proportion of RFE’s 50mmbboe Mississippi Lime 1C resource as 3P reserves on this basis.

Our valuation does not factor-in full-field dev’t of 3 gross wells per 640-acre spacing unit, further down-spacing nor the underlying Woodford Oil Shale potential.

We believe that with on-going production data and highlighting the development infrastructure in-place, RFE will be of inc. corporate appeal."