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TAG Oil has solid cash flow to pump back into operations, says broker Mackie

Last updated: 01:57 30 Jun 2018 AEST, First published: 20:57 29 Jun 2018 AEST

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TAG Oil is a production firm focused on New Zealand and Australia

Australasia-focused oil and gas producer TAG Oil Ltd (TSE:TAO) has a solid cash flow base on the back of firmer crude prices, which it can use to fund its fiscal 2019 operations.

So says broker Mackie, which repeated a 'buy' stance on the stock Friday and a punchy C$0.70 price target (shares are curently at C$0.38).  

Earlier, the oiler posted financial and operational results for the year to end March, which showed revenue had increased by 1% to C$23.7mln versus C$23.3mln in the previous year.

Operating netback increase

Operating netback, the measure of oil and gas sales revenue after royalties, production and transportation expenses, increased 23% in the year to C$30.66 per boe (barrel oil equivalent).

Mackie analyst Bill Newman  noted that average production in the final three months of the year came in at 1,117 boe/d (barrels of oil equivalent per day, at 75% oil), which was pretty much in line with the broker's forecast of 1,050 boe/d.

Cash flow was C$0.4mln, which was below the forecast C$2.66mln ($0.03/fd share) on higher G&A (general and administrative) costs and a one-time accounting adjustment which lowered revenue by around C$970,000, said Newman.

TAG produced 351mboe in 2018

"TAG produced 351 mboe during the fiscal year 2018, which was nearly offset by reserves additions of 287 mboe, added primary through the reclassification of contingent resources to reserves from the Cheal East waterflood program," noted the analyst.

The after-tax NPV (net present value) discounted at a rate of 10% increased by 22% to C$96.1mln, up from of C$78.3mln, mainly due to a reduction in future development capital.

 As at March 31, TAG had no debt and net positive working capital of C$3.4mln

In April, it secured a revolving credit facility of up to US$10 million (C$12.5 million).

Newman summed up that with Brent crude firmly above US$65 a barrel, and current corporate production of around 1,250 boe/d, TAG had a "solid cash flow base that can be reinvested into low cost, well workovers, water-floods and infill drilling".

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