My updated forecast/valuation model for ROK will be posted to the EPG website tomorrow morning.
REGINA, SK / ACCESSWIRE / November 21, 2023 / ROK Resources Inc. ("ROK" or the "Company") (TSXV:ROK)(TSXV:ROK.WT)(OTCQB:ROKRF) has filed its interim Financial Results and Management Discussion & Analysis for the three and nine months ended September 30, 2023.
Q3 2023 HIGHLIGHTS
Production up 10% YoY and 17% QoQ: Production averaged 3,858 boepd in the period, representing 10% growth compared to Q3 2022 and 17% growth compared to Q2 2023. < Beat my production forecast of 3,500 Boepd. ROK is a new company for me, so I will be "conservative" on my forecasts until I gain more confidence in this one. The Company's 2023 exit rate guidance is 4,300 to 4,500 Boepd, so I will use the low end for my Q4 forecast.
Outperformed production forecast: Production exceeded the Company's average Q3 2023 forecast of 3,475 boepd by 11%.
Net Debt reduced by 51% YoY: Net debt reduced from $30.7 million at Q3 2022 to $15.0 million in Q3 2023. < This is VERY GOOD NEWS.
Consistent with previous disclosure, the Company's capital program remained weighted to the second half of 2023, with a focus on Southeast Saskatchewan light oil growth. Total debt has been reduced by over 51% year-over-year, which has provided the Company with the flexibility to allocate development capital across some of the most economic plays in North America.
Adjusted Operating Cash Flow of $5.3 million came in below my forecast of $8.9 million. The Company is still on-track to generate operating cash flow that exceeds their capital expenditures. ROK is still in the early "Growth Stages". Production growth and Proved Reserve growth are the most important stats at this point. The Company's balance sheet is in great shape thanks to the non-core asset sales that closed in April.
OPERATIONS UPDATE
In Q3 2023 the Company successfully drilled and completed 6 gross (5.9 net) wells in Southeast Saskatchewan, consisting of 3 gross (2.9 net) Frobisher horizontal wells and 3 gross (2.98 net) Midale horizontal wells. The Company had the 8th best performing Mississippian oil well in Saskatchewan for Q3 2023 with monthly volume of 6,962 bbls and an IP30 of 232 bbls/d.
In Q4 2023 the Company has drilled 3 gross (3 net) Frobisher horizontal wells in Southeast Saskatchewan and 1 gross (0.30 net) Gething gas well in Kaybob Alberta. In December, the Company will drill 2 gross (1.45 net) wells, both unbooked horizontal Frobisher locations in core operating areas.
Current corporate production is approximately 4,000 boepd with 2 gross (2 net) Midale horizontal wells in "clean-up" period post-frac, plus an additional 6 gross (4.75 net) wells forecasted to be on-stream no later than Q1 2024. < This means that ROK should report solid quarter-to-quarter production growth for Q4 and Q1. Most Canadian companies report a decline in production from Q1 to Q2 simply because winter is rough in Western Canada.
OUTLOOK
The Company has had success with early Q3 2023 drilling results and will complete its drilling program in late Q4 2023, a few weeks behind schedule. With operational delays impacting on-stream dates, management expects some wells to begin producing in early Q1 2024. Management will evaluate production results and release a 2024 capital budget and production guidance in Q1 2024.
ROK Resources (ROK) Q3 Results - Nov 21
ROK Resources (ROK) Q3 Results - Nov 21
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ROK Resources (ROK) Q3 Results - Nov 21
I have updated my forecast/valuation model for ROK and posted it to the EPG website. I have lowered my valuation by $0.08US to $0.72US per share simply because I have lowered my valuation multiple by 0.5 to 4.5 X annualized operating cash flow per share.
Operating expenses in Q3 were much higher than my forecast because "The Company proactively chose to perform seven facility turnarounds that were overdue on the recent acquisitions. Annual costs incurred in Q3 2023 such as property taxes, government fees and levies and increased water and emulsion trucking costs during evaluation stages of new wells also contributed to the increased operating expenses of the quarter. The Company expects operating costs to normalize back to previous levels in Q4 2023 and through 2024."
The royalty expense was lower than my forecast and all other cash expenses were in line with my forecast.
I want to see a clean 4th quarter and make sure they hit their 2023 production exit rate guidance of ~4,400 Boepd. More detailed guidance for 2024 will also raise my confidence in the model. < Early Stage Small-Caps like this always have some "Growing Pains", including difficulty in getting oilfield services on a timely basis. This one has a Good Team, which is why I added it in the first place.
Operating cash flow should be much higher in Q4. My Q4 forecast is $11.5Cdn million ($0.05Cdn CFPS), more than double what it was in Q3. For the full year, ROK's operating CFPS should be approximately $0.16Cdn/share, darn good for a stock that's trading at $0.34Cdn. Their 2023 D&C CapEx should be fully funded by operating cash flow; very impressive for an early-stage Junior.
ROK's D&C CapEx will be backend loaded each year, so free cash flow will be much higher in the first half of each year. This is typical of Canadian Juniors; spending more to fund a drilling program during the winter months is unwise in Western Canada.
Operating expenses in Q3 were much higher than my forecast because "The Company proactively chose to perform seven facility turnarounds that were overdue on the recent acquisitions. Annual costs incurred in Q3 2023 such as property taxes, government fees and levies and increased water and emulsion trucking costs during evaluation stages of new wells also contributed to the increased operating expenses of the quarter. The Company expects operating costs to normalize back to previous levels in Q4 2023 and through 2024."
The royalty expense was lower than my forecast and all other cash expenses were in line with my forecast.
I want to see a clean 4th quarter and make sure they hit their 2023 production exit rate guidance of ~4,400 Boepd. More detailed guidance for 2024 will also raise my confidence in the model. < Early Stage Small-Caps like this always have some "Growing Pains", including difficulty in getting oilfield services on a timely basis. This one has a Good Team, which is why I added it in the first place.
Operating cash flow should be much higher in Q4. My Q4 forecast is $11.5Cdn million ($0.05Cdn CFPS), more than double what it was in Q3. For the full year, ROK's operating CFPS should be approximately $0.16Cdn/share, darn good for a stock that's trading at $0.34Cdn. Their 2023 D&C CapEx should be fully funded by operating cash flow; very impressive for an early-stage Junior.
ROK's D&C CapEx will be backend loaded each year, so free cash flow will be much higher in the first half of each year. This is typical of Canadian Juniors; spending more to fund a drilling program during the winter months is unwise in Western Canada.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: ROK Resources (ROK) Q3 Results - Nov 21
Comments from other analysts:
"This morning, ROK announced its Q3/23 financial and operational results that were more or less in line with our forecasts. The company demonstrated significant activity on the drilling front, completing a total of six wells in Q3 and an additional three wells in Q4/23. Two additional wells are anticipated to be drilled in December. The success of this drilling program has led to a boost in current production, reaching approximately 4,000 boe/d, and additional volumes are expected to come online in Q1/24. We maintain our BUY recommendation and our $0.75 target price equal to an EV/DACF multiple of 3.5x applied to our 2024 DACF estimate."
Bill Newman, CFA
bnewman@researchcapital.com
---------------------------------------
Company Updates / Research:
• ROK Resources (ROK-V, $0.345) – Buy, $0.95 Target, Garett Ursu: This morning ROK Resources reported Q3/23 results with production of 3,858 BOE/d well ahead of our 3,475 BOE/d forecast as well as guidance at 3,475 BOE/d as the Company drilled and completed six gross (5.9 net) SE Saskatchewan wells including three gross (2.9 net) Frobisher and three gross (2.98 net) Midale horizontal wells in the quarter. Of note, ROK posted the “8th best performing Mississippian oil well in Saskatchewan” for Q3/23 with that well producing ~7.0 MB of (monthly) oil with an impressive initial rate (IP-30) of 232 B/d. The Company has now drilled three (100% WI) SE Sask Frobisher wells and one (30% WI) Kaybob Gething gas well in Q4/23 with two gross (1.45 net) unbooked Frobisher wells still to drill next month. With new wells onstream (including two 100% WI Midale wells still in cleanup), current volumes are ~4,000 BOE/d with exit production of 4,300-4,500 BOE/d forecast. ROK now expects to complete its 2023 drilling program in late Q4/23 (slightly behind schedule) with some wells to begin producing in early Q1/24, hence the lower exit guidance (compared to previous exit guidance of 4,500 BOE/d). Six gross (4.75 net) wells remain to be brought onstream by Q1/24. Cash flow in Q3/23 of $5.3 MM or nil per share was behind our $6.6 MM ($0.02/share) forecast despite the higher volumes as materially higher operating costs (due to proactive facility turnarounds) and lower than expected realized pricing offset the higher volumes and lower royalties, though we expect opex to normalize in Q4/23 and beyond. E&D spending of $7.5 MM ($8.5 MM including ARO and land) was below our $12.8 MM forecast on operational delays (though 2023 spending guidance remains $30 MM), putting net debt at ~$15.0 MM at the end of September. Finally, a Preliminary Economic Assessment (PEA) for the 25% owned Hub City Lithium SE Sask project remains on track for release this quarter (Q4/23). While operational issues have pushed some wells into 2024, the Q3/23 volume beat offsets slightly lower exit guidance with our bullish thesis on the name unchanged. Trading below 2.0x 2024E EV/EBITDA while aggressively growing production, we reiterate our BUY rating and $0.95 target on ROK. – GU
-----------------------------
From VIII Eight Capital: Christopher True
"ROK reported Q3/23 results this morning. We believe the update will have a slight negative impact on the stock as ROK missed on CFPS, which was largely a result of higher-than-expected operating costs. This is the third quarter in a row with opex/BOE being higher than expected post-acquisitions completed in early 2023. The company also reported delays in drilling activity, which resulted in the company softening its exit production rate from 4.5 MBOE/d to a range of 4.3 - 4.5 MBOE/d. However, we are expecting to see the incremental volumes come in during Q1/24.
Cash flow below expectations: The company generated cash flow (including cash interest expense) of $5 million which is below our $8.6 million estimate and Bloomberg consensus of $5.6 million. The miss on cash flow was largely due to higher than estimated operating costs as a result of facility turnarounds that were overdue after the recent acquisitions and annual costs such as property taxes, government fees and increased water and emulsion trucking costs, which impacted the quarter. ROK notes that it expects operating costs to normalize to previous levels in Q4/23.
Capex lower than expected: The company spent $9 million on capex during the quarter, which is below our $14 million estimate and in line with Bloomberg consensus of $8 million. During the quarter, ROK experienced some delays on its drilling program which has resulted in the company shifting more wells into Q4/23 from Q3/23 and still expecting to reach its $30 million capital expenditure guidance.
Production was higher than expected: The company reported production of 3.9 MBOE/d which is a touch higher than our 3.7 MBOE/d estimate and above consensus of 3.5 MBOE/d. Production was ahead of our estimates due to greater than expected gas volumes in the quarter. Due to delays in the drilling schedule, ROK is expecting some wells to begin producing in early Q1/24 and has updated its 2023 exit guidance to a range of 4.3 - 4.5 MBOE/d from 4.5 MBOE/d.
Operations update: In Q4/23, ROK drilled 3 gross (3 net) Frobisher horizontal wells in Southeast Saskatchewan and 1 gross (0.30 net) Gething gas well in Kaybob Alberta. In December, the company will drill 2 gross (1.45 net) wells, both unbooked horizontal Frobisher locations in core operating areas. Current production is approximately 4 MBOE/d with 2 gross (2 net) Midale horizontal wells in "clean-up" period post-frac, plus an additional 6 gross (4.75 net) wells forecasted to be on-stream no later than Q1/24.
We reiterate our BUY rating and $0.65 target price. Our target is based on a 50/50 weighting of 4.0x 2023E EV/DACF target multiple and 1x our risked estimated NAVPS. Risks to our price target include commodity prices, cost inflation, equipment, rig & crew availability, and production performance.
"This morning, ROK announced its Q3/23 financial and operational results that were more or less in line with our forecasts. The company demonstrated significant activity on the drilling front, completing a total of six wells in Q3 and an additional three wells in Q4/23. Two additional wells are anticipated to be drilled in December. The success of this drilling program has led to a boost in current production, reaching approximately 4,000 boe/d, and additional volumes are expected to come online in Q1/24. We maintain our BUY recommendation and our $0.75 target price equal to an EV/DACF multiple of 3.5x applied to our 2024 DACF estimate."
Bill Newman, CFA
bnewman@researchcapital.com
---------------------------------------
Company Updates / Research:
• ROK Resources (ROK-V, $0.345) – Buy, $0.95 Target, Garett Ursu: This morning ROK Resources reported Q3/23 results with production of 3,858 BOE/d well ahead of our 3,475 BOE/d forecast as well as guidance at 3,475 BOE/d as the Company drilled and completed six gross (5.9 net) SE Saskatchewan wells including three gross (2.9 net) Frobisher and three gross (2.98 net) Midale horizontal wells in the quarter. Of note, ROK posted the “8th best performing Mississippian oil well in Saskatchewan” for Q3/23 with that well producing ~7.0 MB of (monthly) oil with an impressive initial rate (IP-30) of 232 B/d. The Company has now drilled three (100% WI) SE Sask Frobisher wells and one (30% WI) Kaybob Gething gas well in Q4/23 with two gross (1.45 net) unbooked Frobisher wells still to drill next month. With new wells onstream (including two 100% WI Midale wells still in cleanup), current volumes are ~4,000 BOE/d with exit production of 4,300-4,500 BOE/d forecast. ROK now expects to complete its 2023 drilling program in late Q4/23 (slightly behind schedule) with some wells to begin producing in early Q1/24, hence the lower exit guidance (compared to previous exit guidance of 4,500 BOE/d). Six gross (4.75 net) wells remain to be brought onstream by Q1/24. Cash flow in Q3/23 of $5.3 MM or nil per share was behind our $6.6 MM ($0.02/share) forecast despite the higher volumes as materially higher operating costs (due to proactive facility turnarounds) and lower than expected realized pricing offset the higher volumes and lower royalties, though we expect opex to normalize in Q4/23 and beyond. E&D spending of $7.5 MM ($8.5 MM including ARO and land) was below our $12.8 MM forecast on operational delays (though 2023 spending guidance remains $30 MM), putting net debt at ~$15.0 MM at the end of September. Finally, a Preliminary Economic Assessment (PEA) for the 25% owned Hub City Lithium SE Sask project remains on track for release this quarter (Q4/23). While operational issues have pushed some wells into 2024, the Q3/23 volume beat offsets slightly lower exit guidance with our bullish thesis on the name unchanged. Trading below 2.0x 2024E EV/EBITDA while aggressively growing production, we reiterate our BUY rating and $0.95 target on ROK. – GU
-----------------------------
From VIII Eight Capital: Christopher True
"ROK reported Q3/23 results this morning. We believe the update will have a slight negative impact on the stock as ROK missed on CFPS, which was largely a result of higher-than-expected operating costs. This is the third quarter in a row with opex/BOE being higher than expected post-acquisitions completed in early 2023. The company also reported delays in drilling activity, which resulted in the company softening its exit production rate from 4.5 MBOE/d to a range of 4.3 - 4.5 MBOE/d. However, we are expecting to see the incremental volumes come in during Q1/24.
Cash flow below expectations: The company generated cash flow (including cash interest expense) of $5 million which is below our $8.6 million estimate and Bloomberg consensus of $5.6 million. The miss on cash flow was largely due to higher than estimated operating costs as a result of facility turnarounds that were overdue after the recent acquisitions and annual costs such as property taxes, government fees and increased water and emulsion trucking costs, which impacted the quarter. ROK notes that it expects operating costs to normalize to previous levels in Q4/23.
Capex lower than expected: The company spent $9 million on capex during the quarter, which is below our $14 million estimate and in line with Bloomberg consensus of $8 million. During the quarter, ROK experienced some delays on its drilling program which has resulted in the company shifting more wells into Q4/23 from Q3/23 and still expecting to reach its $30 million capital expenditure guidance.
Production was higher than expected: The company reported production of 3.9 MBOE/d which is a touch higher than our 3.7 MBOE/d estimate and above consensus of 3.5 MBOE/d. Production was ahead of our estimates due to greater than expected gas volumes in the quarter. Due to delays in the drilling schedule, ROK is expecting some wells to begin producing in early Q1/24 and has updated its 2023 exit guidance to a range of 4.3 - 4.5 MBOE/d from 4.5 MBOE/d.
Operations update: In Q4/23, ROK drilled 3 gross (3 net) Frobisher horizontal wells in Southeast Saskatchewan and 1 gross (0.30 net) Gething gas well in Kaybob Alberta. In December, the company will drill 2 gross (1.45 net) wells, both unbooked horizontal Frobisher locations in core operating areas. Current production is approximately 4 MBOE/d with 2 gross (2 net) Midale horizontal wells in "clean-up" period post-frac, plus an additional 6 gross (4.75 net) wells forecasted to be on-stream no later than Q1/24.
We reiterate our BUY rating and $0.65 target price. Our target is based on a 50/50 weighting of 4.0x 2023E EV/DACF target multiple and 1x our risked estimated NAVPS. Risks to our price target include commodity prices, cost inflation, equipment, rig & crew availability, and production performance.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group