Current SYRG Stock Info

Synergy Resources Corporation (ticker: SYRG) announced it has finalized a turn-key contract for its third rig and will be adding it to its Wattenberg acreage immediately, according to a company news release on July 9, 2014. The terms of the new contract allow for the drilling of at least eight wells on SYRG’s Wiedeman lease, which will begin in August. Future operations of the rig will be determined on a pad by pad basis. The company holds contracts for all three rigs with Ensign Drilling Company and the remaining two rigs are under contract fo...

Analyst Commentary

Johnson Rice & Co. Note – (7.9.14)

This morning, SYRG released in-line CFPS of $0.24 (vs cons’ $0.25 & our $0.28, see note). While it was telegraphed by the company, production delays (flooding/plant downtime) were worse than the Street modeled (4.1 mboe/d vs cons’ 4.5 & our 4.4). Production should rebound quickly and SYRG reiterated its prior fiscal ’14 exit-rate guidance of 6.5-9.0 mboe/d. For reference, consensus is at 8.2 mboe/d for 1Q:15, so hitting the exit midpoint should pressure ’15 numbers upwards. SYRG is also adding a third rig, which had also been telegraphed and accounted for in our/consensus numbers. The Union Pad (most western pad to date), looks strong and the wells came in at <$3.8mm apiece (vs prior's $4.0mm). We reiterate our Overweight rating, and would remind people that SYRG trades at a discount (5.3x '15 EV/EBITDA vs group's 5.9x), despite having strong growth (CFPS +87% y/y in '14 vs group's +26%) and the most exposure to the Niobrara in the public space (acres/EV).

• We believe the third rig is a positive in-so-much as it should allow SYRG to continue to grow at a pace well above the E&P group. This dramatic growth pushes SYRG to being well below the group on multiples by YE:15. As a reminder, us/consensus had already incorporated a third rig into numbers. That being said, SYRG should be able to put up >100% y/y growth in ’15; a rarity for a company trading below group multiples. By way of example, on 4Q:15 annualized EBITDA, SYRG will be trading at 4.4x EV/EBITDA, which is where the GoM group trades (i.e. cheap).

• The company should have ~250 permits in-hand before any legislation is passed regarding setbacks. Those permits have historically been grandfathered in, so 24 months of inventory should be “outside” of that legislation.

• We have adjusted our estimates to reflect 3Q actuals and today’s guidance. Production and CFPS for ’15 are moving from 9.8 mboe/d and $2.68 to 9.8 mboe/d and $2.36. The largest needle mover was our differential, which increased by ~$6/bbl.  

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