ROK Resources (ROK.V) - Mar 25

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dan_s
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Joined: Fri Apr 23, 2010 8:22 am

ROK Resources (ROK.V) - Mar 25

Post by dan_s »

Beacon Securities: ROK has transitioned from a company with 3,000 boe/d and $46 million of net debt about a year ago to one with 3,750 boe/d and $15 million of net debt once this sale closes next week. ROK has at least 172 drilling locations identified, so we expect an increase in H2/23 drilling. We maintain our price target of $0.90, which tracks to a 2.4x EV/DACF multiple of our 2024 forecasts. We maintain our Buy rating.
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ROK announced that it has agreed to sell some non-core assets that are producing a combined 490 boe/d for $47.25 million as the company looks to significantly reduce debt and effectively take more control of its destiny by removing some non-operated assets.

The main component of the sale is ROK’s 2.1% interest in the Weyburn Unit, which accounts for the vast majority of the transactions. Weyburn is a high-quality asset that accounted for approximately 11% or ROK’s production and 21% of its 2022 net operating income. As such, it is easy to understand why Rife Resources (the purchaser of ROK’s Weyburn interest) paid such high valuation metrics of nearly $100,000 per flowing boe and 4.6x EV/NOI.

A key result of the disposition is the 90% reduction in ROK’s senior term debt and the expectation that the senior term debt will be eliminated by the end of Q2/23. As such, ROK estimates that it will save $5.8 million in interest payments and increase monthly cash flow by $2.5 million.

ROK plans to provide 2023 guidance when the sale closes on March 31, 2023. For now, we have lowered our production forecasts from Q2/23 forward by the volumes sold and have maintained our $35 million E&D capex program for this year.
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ROK was recently added to our Small-Cap Growth Portfolio. I believe it should be at least a double for us. The asset sale above will clean up the balance sheet and the company has a lot of high quality running room. The CEO will be coming to Houston in April to speak to us.
Dan Steffens
Energy Prospectus Group
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