Hyperion Exploration exited 2011 with a bang; the company was able to exceed its exit guidance by spending less capital than anticipated. I believe this strong operational momentum is carried into 2012 with the upcoming operational update and the 2012 capex program due at any day before the end of this month. I never hid the fact that I like Hyperion Exploration HYX.V 0.375 [-0.015], I featured it as a stock pick, I included it in my 5 top junior oil stocks for 2012 and I own a good chunk of stock all over my accounts. The fact that veteran oilman Trevor Spagrud leads this company is a heavy weight variable in my equation for choosing to invest.
When you look at the last operational update, you will realize what this Cardium junior has achieved in 2011:
- Hyperion increased its oil weighting to 69% up from 41% in Q1/11.
- Hyperion’s exit production guidance was met by drilling 5 (4.6) wells of the 6(5.2) that were planned for thus spending less capital than anticipated.
- Hyperion entered 2012 with a debt of $7M vs the original $14M originally budgeted by the company which equals significant financial flexibility for 2012.
- Hyperion produced impressive results in Garrington and Buck Lake on 3 wells.
How will this positive momentum carry forward? Well, the best is yet to come as results for its 2 Pembina wells will be released in the coming update (the targeted 30-day type curve for the area is 275 boe/d). I expect the company to blow through the type curve just like the first 3 wells that used slick water fracking which will provide a positive catalyst for 2012. Obviously, the company’s line of credit will be boosted up from $18M on the back of its drilling successes. HYX is drilling again, it spud 1 (0.5) well in the Pembina area, it’s third. It currently has 3 drilling rigs in the field and contemplating adding a 4th one in February.
Furthermore, in my opinion, the share price is undervalued and does not reflect the fundamentals of this company. Here’s a rough back of the envelope valuation using the following parameters:
- Production 1,500 boepd, (69% oil weighting)
- Last Price: $0.95
- Net debt: $7M
- Let’s assume the natural gas is produced and sold for $0 profit.
At 69%, production comes out to1,000 barrels of liquids valuing the company at $58,000/boed. PetroBakken just sold non-core assets for $180,000/boed! Wait, obviously this comparison is ridiculous but wouldn’t a flowing barrel of oil fetch $85,000? If you consider this figure reasonable, the share price comes out to $1.44, 50% higher than the current price. Of course, there’s no guarantee we’ll see this price but it’s interesting that the valuation is based on the 2011 exit numbers and not the 2012 exit numbers! ??Let’s wait and see what the guidance will be for 2012.
The balance sheet is strong, the execution is above expectations and the share price is undervalued. The upcoming operational update could be the missing element that adds explosive power to this cocktail fueling a rise in the share price in 2012. ??Hopefully, we’ll get to see some positive action in Q1 of 2012 before drama Queen Europa is back on stage.
Whats your opinion on HYX?
Disclaimer: I have a position in Hyperion Exploration. This??article is not and should not be construed as an offer to sell or the solicitation of an offer to purchase or subscribe for any investment, please do your own due diligence before taking an investment decision.??