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Financial Analysis

Published on September 21, 2012, by in Projects.

Earnings Projections – Lone Pine Resources Inc.

Third and Forth Quarter 2012

Financial Highlights:

  • Stock Price on 21st Sep 2012: USD 1.72
  • Total Assets 30th June 2012: CAD 911.21 million
  • Total Liabilities 30th June 2012: CAD 539.25 million
  • Expected Net loss for year 2012: CAD 83.72 million
  • Expected loss per share for Year 2012: CAD 0.98

About The Company:

Lone Pine Resources Inc. is an independent oil and gas exploration, development and production company with operations in Canada. Upon completion of its IPO on June 1, 2011, Forest retained the controlling interest in the company by owning 82% of the outstanding shares of common stock. Forest distributed all these stocks to its shareholders on September 30, 2011 by paying a special stock dividend..

Effective October 1, 2011 Lone Pine changed its functional currency and reporting currency from the U.S dollar to the Canadian dollar (CAD). Total revenue reported by the company in second quarter 2012 is CAD 42.42 million, decrease of 4.31% from the first quarter of 2012.

Company’s financial results are heavily influenced by the natural gas and crude oil prices. Decline in these commodity prices have negatively impacted the cash flows of the company. A decline in the 12 month average trailing natural gas price resulted in recognition of ceiling test write-down of CAD 128.9 million in second quarters of 2012. Additional write downs may be required in subsequent period if there is further decline in natural gas or oil prices.

Lone Pine maintains a CAD 500 million bank credit facility and it will mature on March 18, 2016. According to this credit facility agreement, in order to avoid an event of default the company will not permit its ratio of total debt outstanding to EDITDA, a trailing 12 month period to be greater than 4.0 to 1.0. As at June 30, 2012, this ratio was approximately 3.3 to 1.0. Lone pine uses commodities derivative to hedge against fluctuations in commodity prices. It recognizes all changes in fair value of its derivative instruments as unrealized gains or losses on derivative instruments in the statements of operations.

Company reported a loss before tax CAD 137.99 million in second quarter of 2012 it was primarily associated with the accretion of asset retirement obligations and test write-down of oil and natural gas properties. Loss before tax CAD 11.56 million was reported in first quarter of 2012. Net loss of CAD 9.51 million and CAD 105.04 million was reported in the first and second quarter of year 2012.

Earning Projections:

Projections for the last two quarter of year 2012 are based on the historical growth patterns of the same quarters last year. Nonrecurring items like asset retirement obligations and write-down of oil and natural gas have been removed for future projections. Company is planning to cut down its expense and there are fewer chances that expenses are going to increase at higher than historical rate. Expenses are also following the growth pattern of same period in the last year.

Projected results for third quarter 2012 show that the company is going to generate positive net income, CAD 65.77 million. EPS for the third quarter of year 2012 is expected to be 0.77 and EPS (loss per share) for the fourth quarter of year 2012 is expected to be (0.41). Based on the assumptions EPS (loss per share) for the year 2012 is expected to be (0.98) which is primarily influenced by the reported EPS (loss per share) of second quarter of 2012, i.e. (1.24).

Lone Pine Resource Inc. – Projections

CAD(million)

2Q 2012

3Q2012

4Q2012

Total Revenue

42.4

42.3

49.1

Cost of Goods Sold

19.3

11.4

16.4

S G&A Expenses

5.8

2.9

3.3

Depreciation & Amortization

31.9

32.5

42.9

Interest Expenses

8.2

11.1

12.6

Net Income

(105.0)

65.8

(34.9)

 EPS

(1.24)

0.77

(0.41)

Oil and gas industry is also influenced by seasonal weather patterns. Municipal and provincial transportation regulation and seasonal weather changes could result in higher costs, shortages and delay in production activities.

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