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Canada Research
Published by Raymond James Ltd.
Storm Resources Ltd.
October 1, 2014
Company Report - Initiation of Coverage
SRX-TSXV
Kurt Molnar | 403.221.0414 | [email protected]
Gordon Steppan CFA (Associate) | 403.221.0411 | [email protected]
Braden Purkis (Associate) | 403.509.0518 | [email protected]
Junior Oil & Gas Producers
Outperform 2
C$8.00 target price
Current Price ( Sep-29-14 )
Total Return to Target
52-Week Range
Suitability
Enter the Storm
Recommendation
Whenever stock markets “convulse” and reduce equity valuations for individual
stocks/business models based on the broader macroeconomic themes we routinely
note that such a situation is a rare opportunity for the E&P investor to supersize
their investment CAGRs by initiating new positions, or upsizing existing positions, in
the industry’s superior business models. To use a different analogy, follow Warren
Buffett’s “strategic lead” and use market weakness to buy more of (or all of) your
best ideas --- Burlington Northern being a recent such scenario for Berkshire
Hathaway/Buffett.
Obviously then, we would tell the E&P investor to buy more stock in our best ideas
(if the investor’s situation allows) but we also highlight this is the perfect timing to
look at new superior situations you might not already have in the portfolio. That rule
applies to Research too. Accordingly, we are using this window as perfect timing to
launch our coverage of Storm Resources with an Outperform rating and $8.00
target. This is simply an outstanding management team, in our view, with strong
strategic and operational acumen and a large position in the Montney region we
find most interesting after Kakwa and Karr (Alberta).
Analysis



The Company has capture of a large Montney land base (at Umbach, BC) in a
window that is both over-pressured and liquids rich. The thickness of the Montney
(Upper/Mid/Lower) and the particularly tight perm here suggests to us the potential
for 3-5 layers of development.
The Umbach Montney is also relatively unique in that it resides at a vertical depth of
only 1,800 meters, suggesting the relative ease of achieving two mile lateral
development wells here (typically a big profit to investment win for the Company
and investor) should their frack methodology suggest that they can properly
stimulate that length of lateral in the play in this area. Recent wells in 2014 have
frankly surprised to the upside in our view, despite the fact that we expected
ongoing improvement in the Storm type curves.
C$5.78
38%
C$6.10 - C$3.29
High Risk
Market Data
Market Capitalization (mln)
Net Debt (mln)
Enterprise Value (mln)
Shares Outstanding (mln)
10 Day Avg Daily Volume (000s)
Dividend/Yield
Key Financial Metrics
2013A
P/CFPS
19.4x
WTI (US$/bbl)
US$98.00
AECO Gas (C$/mcf)
C$3.18
Exchange Rate (US$/C$)
0.97
Production (boe/d)
3,637
Natural Gas %
73%
Debt/Cash Flow
0.7x
EV/EBITDA
NA
C$643
C$50
C$694
111.3
332
C$0.00/0.0%
2014E
2015E
13.1x
8.1x
US$102.29
US$100.00
C$4.76
C$4.35
0.92
0.92
6,350
9,945
79%
81%
1.0x
1.1x
14.2x
8.3x
Company Description
Storm is an oil & gas producer with a particular focus
on Northeast British Columbia (NEBC). The Umbach
area in NEBC will see the majority of activity in the
near future.
Given then that we remain very early in optimizing techniques and defining the full
scale of the drilling opportunity, the chance to buy this stock at lower levels due to
market spasms is a welcome opportunity, indeed.
Valuation
Our standard sum of parts valuation approach builds out to our $8.00 target price
(see Exhibit 15 on page 12 for more detail). We believe investors can achieve a 2.3x
weighted average recycle ratio buying at or below our target price.
CFPS
2013A
1Q
Mar
2Q
Jun
3Q
Sep
4Q
Dec
Full
Year
C$0.05
C$0.07
C$0.08
C$0.09
C$0.30
Revenue
(mln)
-
C$50
2014E
0.08A
0.10A
0.10
0.15
0.44
93
2015E
0.17
0.12
0.18
0.24
0.71
138
Source: Raymond James Ltd., Thomson One
Please read domestic and foreign disclosure/risk information beginning on page 19 and Analyst Certification on page 19.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 2 of 24
Storm Resources Ltd.
Table of Contents
Investment & Company Overview ....................................................................................................................... 3
Valuation & Recommendation ............................................................................................................................ 11
Appendix I: Financial Statements ........................................................................................................................ 13
Appendix II: Management ................................................................................................................................... 15
Appendix III: Production, Funds Flow, and Cash Costs ........................................................................................ 16
Risks ..................................................................................................................................................................... 17
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Investment & Company Overview
This is the fourth business to bear the Storm name. Each has been very successful and we think
that this iteration has the potential to be the best to date. Management here (CEO Brian
Lavergne, et al) are among the most disciplined we know in the Basin and one of the very rare
exceptions in the Basin to happily discuss the things they do right and the things they get wrong.
Happily for investors, there has been little reason for addressing the “wrong” side of the equation
in recent years and we think the future looks particularly bright for Storm and its shareholders.
Exhibit 1: Major Areas
Source: Storm Resources Ltd.
The map immediately above sets out Storm’s three core areas. The Horn River Basin is a large land
position into a lean gas project area that frankly needs higher natural gas prices before it is likely
to see any meaningful capital. In short, it is a call option for Storm and its investors, but to be of
little focus until one of higher gas prices or an industry driven technological change occur to
improve the Horn River’s competitive position in our “boot analogy” (see our Report “Finding Easy
Alpha in E&P Enlightenment,” published November 14, 2013). The Grande Prairie asset/core area
is low decline production which is swept for free cash flow to be dedicated to the Umbach core
area which will be the driver of the value proposition going forward.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
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Canada Research | Page 4 of 24
Storm Resources Ltd.
Umbach: Let’s Check Out the Neighborhood
The map immediately below highlights Storm’s land blocks at Umbach along with competitor land
positions and recent land sale activity.
Exhibit 2: Umbach Area 2013-2014 Montney Land Sales
Source: Storm Resources Ltd.
It should be no surprise that some of the very best Montney teams in the Basin are heavily
involved in the area (ARC, Shell, Paramount, Kelt) along with Storm. Emerging small caps that we
also like a great deal are Chinook and Artek. Private players that may be lesser known, but are also
active in the Basin, include Black Swan, Saguaro, Carmel Bay, TODD and UGR. This is frankly an
opportunity-rich environment for the smart E&P investor, in our view. There is an old saying that
tells us to “follow the smart money.” Smart money has been building land bases in this fairway for
some time now simply due to the fundamental richness of the opportunity where the best plays
for horizontal development in this basin are routinely over-pressured and liquids rich. This not
only supersizes the resource (more hydrocarbon per section), but also the margins (due to liquids
content) at the same time maximizing capital efficiencies (production and reserves) due to the
reservoir pressure and extra liquids that come with the units of gas. The maps from Black Swan
immediately below give a very clear rationale as to why these companies have focused on this
particular fairway.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Exhibit 3: Liquids Rich Montney Fairway
Source: Black Swan Energy
While the land grab on this fairway has been very active, drilling on these lands (for Storm and
their peers) remains at relatively early stages. Storm has been one of the most active drillers,
both in delineating their particular prize and moving along the S-Curve on improving marginal well
economics with evolving drilling and frack techniques. Storm has already built a meaningful
production base on the Umbach property, but most recent wells have enjoyed step change
improvements such that the rate of growth (production, cash flow, free cash flow and rate of
returns on invested capital) is just at the start of reflecting what we think can be a very impressive
rate of change.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
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Storm Resources Ltd.
Exhibit 4: Start of an Impressive Rate of Change
All of this happened before
consideration of a step change
improvement in recent wells.
Source: Storm Resources Ltd., Raymond James Ltd.
The map below concentrates on Storm’s land position in more detail, highlighting pay thickness
contours and regional well control.
Exhibit 5: Umbach Land Position
Source: Storm Resources Ltd.
In their earliest stages of development, Storm rationally “came up the learning curve” on their
60% lands at Umbach North effectively doing R&D with 60 cent dollars. Learnings on this front
drove Storm to add incremental lands (at 100%) and also had Storm focus on lands typically with
thicker pay sections than those at Umbach North. Once Storm decided to get more focused on
development of the land base, while still making innovations in drilling and completion
techniques, their drilling and infrastructure development moved almost exclusively to their 100%
lands.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Canada Research | Page 7 of 24
Exhibit 6: Umbach Activity
Note: Storm isn’t getting bigger,
they are getting better with
operating costs at Umbach South
30% lower than Umbach North.
Source: Storm Resources Ltd., Raymond James Ltd.
Storm now has 42 mmcf/d of 100% owned compression on these 100% lands and that
infrastructure is on its way to 66 mmcf/d in 2015E and we expect that 100 mmcf/d will be in the
business plan for 2016.
Storm is also pursuing upside for their investors in three dimensions. Current development
activity is focused at Umbach South, but only 32 sections of this focus area have been delineated
to date (see Umbach lands outside the black highlighted area in the map below).
Exhibit 7: Umbach Lands Delineated To Date
Source: Storm Resources Ltd.
There also remains horizontal opportunity to be pursued immediately to the west of the 32
delineated Umbach South sections, as well as a large land block at Nig. In all cases, regional
drilling activity has confirmed the existence of Montney (and in many cases in multiple layers).
The exhibit below highlights the Montney thicknesses seen by Storm, which we expect should
allow for multiple layers of Montney development on the land base that Storm has captured.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 8 of 24
Storm Resources Ltd.
Exhibit 8: Umbach Montney Cross Section
Source: Storm Resources Ltd.
The Evolution of Drilling & Completions
Exhibit 9: Umbach Horizontal Well Performance
Source: Storm Resources Ltd.
The graphics above give a snapshot of the evolution of drill bit results from Storm to date. The
2011 and 2012 type curves improved sequentially as the number of fracs grew, while the bulk of
Storm’s drilling activity was on 60% working interest lands (with thinner pay in the Montney). In
2013 and beyond, Storm’s activity shifted to their 100% lands with greater pay thickness and the
number of fracs continued to grow while other completion innovations also occurred. The 2013
results derived another meaningful step change improvement in production profiles while 2014
delivered the largest rate of change in the profiles being delivered. The 2013 vintage of wells were
certainly supportive of Storm’s internal reserve estimate of 4.4 Bcf per well (and well above the
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
independent engineering estimate of 3.5 Bcf per well) but the results to date in 2014 suggest that
Storm’s (and their engineer’s) type curve estimate is going to have to meaningfully increase if the
latest results can be sustained as the new normal.
Exhibit 10: Umbach 2013 – 2014 Horizontal Wells
Source: Storm Resources Ltd.
The graphics above highlight wells 10 through 16 at Umbach, but we would have you focus on
wells 15 and 16. Well 15 has the longer production history and actually has an IP180 that is better
than its IP90. Well 16 has an IP90 that is on par with well 15 and looks to be trending toward
being as good or better than well 15. More importantly, they are a large step change
improvement to wells 10 through 14.
Exhibit 11: Umbach Horizontal Wells
Source: Storm Resources Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 9 of 24
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Storm Resources Ltd.
If that were not already enough to get the investor excited, we note that wells 17 and 18
highlighted on the graph above look like they have the potential to be another step change better
than wells 15 and 16. These two locations do not yet have the same scale of production history,
so we need to reserve judgment of this until later (with more time and data), but clearly the trend
is one to be watched and to be encouraged by.
Exhibit 12: Umbach South Horizontal Economics
Running this metric
on our “standard”
10% discount factor
generates a $5.5 mm
NPV for a 1.1x profit
to investment ratio
from a 4.4 Bcf type
curve.
Our expectation of
an upward revision
to the type curve
should drive a
meaningful step up
in the profit to
investment ratio.
Source: Storm Resources Ltd., Raymond James Ltd.
Execution Drives Acceleration
Exhibit 13: Storm Production Forecast
Source: Storm Resources Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Canada Research | Page 11 of 24
The graph above highlights the production profile that has followed from the step change
improvements in production profiles. You can clearly see sequential improvements in the upward
slopes of the production profiles. But readers of our research know we are not slaves to
production or cash flow. We are slaves to free cash flow and returns on invested capital. This is
the real win that is happening in the background. Capital costs (proved producing F&Ds) are
clearly falling given the steady costs, but vastly improving type curves. Couple that with the
ongoing drive to lower operating costs (higher margins) and returns on invested capital (and
velocity of money/time to payout) are posting even more meaningful improvements. Most
importantly we don’t think that the marginal improvements are done and clearly there is still
plenty of room for the pace of capitalization/spending to also go up. There are many reasons for
the investor to be excited about their prospects, and in our view, the recent sell off in the stock
(as part of a broader industry theme) is just an added and unexpected bonus and a way for the
investors to supersize their CAGR opportunity.
Valuation & Recommendation
Debt at the end of 2014 is forecast at roughly $50 million relative to a $90 million current
borrowing base (that we expect to grow). We estimate exit production volumes for this year
should be in excess of 10,000 Boed such that Storm should be able to easily internally fund a
capital program well in excess of $100 million next year while maintaining a balance sheet with
net debt well under 1:1 run rate cash flow in 2015. If the recent trend in well performance is
sustained, then we expect 2015 and beyond should be exceptional opportunities to create
increased equity value at an increasing speed (as fully funded capital costs drop at the same time
that netbacks grow).
From the delineation of only one third of their land block to date, and from only one layer of
Montney development, Storm has identified a highly conservative future horizontal location count
of 190 locations. We frankly expect that due to tight perm, we will have an average of five drilling
locations per section to develop these lands. We have already noted our belief that ultimately
there will be 3-5 layers of Montney development on these lands but if we conservatively only
consider two layers then we are talking 10 locations per section on 141 net sections at Umbach.
So we think the drilling inventory can readily reach something in the order of 1,400 drilling
locations. To date, Storm has drilled 25 locations and has booked 20 future locations. So we are
left with the notion of a potential for more than 1,350 future locations (about $7.5 billion of
future NPV if we just use a 4.4 Bcf type curve) to drive the growth of future equity value, and that
location and type curve data could ultimately prove to be far too low. We expect that the
marginal proved producing capital cost of this business model can be $10/Boe while they
generate netbacks of $25/Boe. So not only is the opportunity set big, the return potential is also
highly attractive with a proved producing recycle ratio of 2.5x. Even if we aggressively risk the
upside by half, the risk reward remains highly compelling giving us a weighted average investor
recycle ratio of 2.3x.
Exhibit 14: Storm Weighted Average Recycle Ratio
Booked/Forecast
Unbooked
93 mmboe
1.4x
534 mmboe
2.5x
Weighted Average Investor Recyle ratio of
2.3x
Source: Raymond James Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 12 of 24
Storm Resources Ltd.
Exhibit 15: Storm Resources Ltd. Sum of Parts Valuation
2013 Reserve Value
2013 Reserves (mmboe)
Quality Adjustment
Adjusted 2013 Reserves (mmboe)
Cash Flow Factor ($/boe)
Reserve Value Factor $/boe (1.4:1)
Current 2013 Reserve Value
2013 Exit Net Debt ($mn)
Future Capital ($mn)
Dilution Proceeds ($mn)
Current Value of 2013 Assets ($mn)
Fully Diluted Units (mn)
Per Unit (FD) Value
67.7
100%
67.7
$24.55
$17.54
$1,187.5
($15.5)
($521.3)
$9.6
$660.3
115.3
$5.73
2014E Value Add
2014 Gross Capex ($mn)
Less: Land, Seismic & Facilities ($mn)
Drilling Spending ($mn)
Average Cost per Well ($mn)
Forecast 2014 Net Wells
Success Factor
Forecast Successful Wells
Average Reserves/Well (boe)
2014 Forecast Depletion (mmboe)
Wells to Offset Depletion
Net Growth Wells
Net Reserve Growth (mmboe)
Forecast Revisions (mmboe)
Acquisitions (mmboe)
Forecast Net Reserves Growth (mmboe)
Cash Flow Factor ($/boe)
Reserve Value Factor $/boe (1.4:1)
Value Add ($mn)
Change in Net Debt ($mn)
2014 Value Add ($mn)
2014 Net Risk Adj. Equity Value Add (100% )
Fully Diluted Shares (mn)
Per Share (FD) Value
Sum of the Parts Valuation
2013 Reserve Value
G&A/Interest Burden
2014E Value Add
2015E Value Add
2 yrs of Dividends
Target Equity Value
$186.0
($115.2)
$70.8
$5.00
14.2
95%
13.5
850,000
2.3
2.7
10.7
9.1
0.5
0.0
9.6
$24.55
$17.54
$168.8
($34.9)
$133.8
$133.8
115.3
$1.16
$mn
$660.3
($12.1)
$133.8
$156.8
$0.0
$938.8
2015E Value Add
2015 Gross Capex ($mn)
Less: Land, Seismic & Facilities ($mn)
Drilling Spending ($mn)
Average Cost per Well ($mn)
Forecast 2015 Net Wells
Success Factor
Forecast Successful Wells
Average Reserves/Well (boe)
2015 Forecast Depletion (mmboe)
Wells to Offset Depletion
Net Growth Wells
Net Reserve Growth (mmboe)
Forecast Revisions (mmboe)
Acquisitions (mmboe)
Forecast Net Reserves Growth (mmboe)
Cash Flow Factor ($/boe)
Reserve Value Factor $/boe (1.4:1)
Value Add ($mn)
Change in Net Debt ($mn)
2015 Value Add ($mn)
2015 Net Risk Adj. Equity Value Add (90% )
Fully Diluted Units (mn)
Per Unit (FD) Value
$120.5
($28.0)
$92.5
$5.00
18.5
95%
17.6
900,000
3.6
4.0
13.5
12.2
0.0
0.0
12.2
$24.55
$17.54
$213.8
($39.6)
$174.2
$156.8
115.3
$1.36
Per Unit
$5.73
($0.11)
$1.16
$1.36
$0.00
$8.14
Source: Storm Resources Ltd., Raymond James Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Canada Research | Page 13 of 24
Appendix I: Financial Statements
Exhibit 16: Storm Resources Ltd. Financial Statements
2013A
Commodity Price Assumptions
WTI Oil (US$/bbl)
Canadian Par (C$/bbl)
NYMEX Gas (US$/mcf)
AECO Gas (C$/mcf)
FX (US$/C$)
Realized Price
Oil & NGL ($/bbl)
Natural Gas ($/mcf)
Production
Oil & NGL (bbl/d)
Natural Gas (mmcf/d)
Total (boe/d 6:1)
% Gas
Netback ($/boe)
Total Sales
Royalties
Operating
Transport
Field Operating Netback
2014E
2015E
$98.00
$94.16
$3.73
$3.18
$102.29
$104.95
$4.55
$4.76
$100.00
$102.00
$4.25
$4.35
$0.97
$0.92
$0.92
$78.50
$3.64
$86.29
$4.91
$84.46
$4.56
997
15.8
3,637
73%
1,324
30.2
6,350
79%
1,852
48.6
9,945
81%
$37.32
$4.55
$10.86
$1.50
$20.41
$40.04
$5.58
$9.28
$1.79
$23.39
$37.99
$4.56
$7.54
$1.80
$24.09
$22
$0.30
$0.30
$49
$0.45
$0.44
$81
$0.73
$0.71
Weighted Average Shares Outstanding (mln)
Basic
73.4
Diluted
73.5
108.3
110.5
111.3
113.7
Capital Spending ($mln)
Land & Seismic
Drilling, Completions & Other
Well Equipment & Facilities
Other
Acquisitions/Dispositions
Total Capex
$16
$38
$14
$0
($15)
$52
$3
$71
$24
$0
$88
$186
$4
$93
$24
$0
$0
$121
$16
$50
$90
Cash Flow ($mln)
CFPS ($/share, basic)
CFPS ($/share, diluted)
Net debt ($mln)
Net Debt
Source: Storm Resources Ltd., Raymond James Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 14 of 24
Storm Resources Ltd.
Exhibit 16: Storm Resources Ltd. Financial Statements (cont’d)
2013A
2014E
2015E
$50
$93
$138
Income Statement Summary
Total Revenue
Royalties
Opex + Transport
G&A
DD&A
Interest
$6
$13
$17
$16
$26
$34
$4
$4
$4
$19
$28
$44
$1
$2
$3
Other
$29
$1
$0
Taxes
$0
$0
$0
($26)
$19
$37
Current Assets
$7
$14
$14
Derivative (current)
$0
$0
$0
$240
$401
$478
Net Income
Balance Sheet Summary
Net PPE
Other
$3
$0
$0
$251
$415
$491
$12
$37
$37
$1
$3
$3
Long Term Debt
$11
$27
$67
Other Liabilities
$9
$12
$12
Future Income Taxes
$0
$0
$0
$33
$79
$119
Total Share Capital
$218
$336
$373
Total Liabilities & Equity
$251
$415
$491
Total Assets
Current Liabilities
Derivative (current)
Total Liabilities
Source: Storm Resources Ltd., Raymond James Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Appendix II: Management
Exhibit 17: Storm Management
Brian Lavergne, President, Chief Executive Officer and Director - Mr. Lavergne has a Bachelor of
Science in Mechanical Engineering from the University of Alberta (1989) and is a registered
Professional Engineer in the Province of Alberta. Mr. Lavergne was the President and Chief
Executive Officer of Storm Exploration Inc. ("SEO") from 2004 until the sale of SEO to ARC
Resources Ltd. in August 2010. Mr. Lavergne was Vice President, Production of Storm Energy Ltd.
("SEL") from August 2002 until June 2003, and Chief Operating Officer from June 2003 to June
2004. From December 1998 until August 2002, Mr. Lavergne was employed with Storm Energy
Inc. ("SEI"), his last position being Vice President, Production. From February 1994 to December
1998, Mr. Lavergne was employed by Renaissance Energy Ltd. in positions of increasing
responsibility including Exploitation Manager and Operations District Manager.
Donald G. McLean, Chief Financial Officer - Mr. McLean was the Vice President, Finance and Chief
Financial Officer of SEO from 2004 until the sale of SEO to ARC Resources Ltd. in August 2010. Mr.
McLean was the Chief Financial Officer of SEL from August 2002 to June 2004. Mr. McLean was
the Chief Financial Officer of SEI from September 2001 to August 2002. Mr. McLean is a member
of the Institute of Chartered Accountants of Alberta. Mr. McLean was a director of Pinnacle
Resources Ltd. ("Pinnacle") from 1991 to 1998. From 1991 to 2001, Mr. McLean was Chief
Financial Officer and director of a number of public and private companies. Prior to 1991, Mr.
McLean was a partner of Deloitte & Touche LLP, an accounting firm.
Robert S. Tiberio, Chief Operating Officer - Mr. Tiberio was the Chief Operating Officer of SEO
from 2004 until the sale of SEO to ARC Resources Ltd. in August 2010. Mr. Tiberio was appointed
Vice President of Production of SEL in June 2003 and held that position until June 2004. Prior to
Mr. Tiberio's appointment as Vice President of Production, he was a Senior Exploitation Engineer
with SEL. Prior thereto, Mr. Tiberio spent 10 years with Renaissance Energy Ltd. and Husky Energy
in positions of increasing responsibility, ultimately as General Manager of Southern Alberta and
Saskatchewan.
John J. Devlin, Vice President, Finance - Mr. Devlin was appointed Vice President, Finance of
Storm on March 3, 2011. Prior thereto, Mr. Devlin was the Controller of Storm from August 18,
2010 to March 3, 2011. Mr. Devlin was the Controller of SEO from January 2005 until August 17,
2010. From 1998 until January 2005, Mr. Devlin was a self-employed financial consultant. Prior
thereto, Mr. Devlin was the Treasurer of Pinnacle.
Source: Storm Resources Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 15 of 24
Canada Research | Page 16 of 24
Storm Resources Ltd.
Appendix III: Production, Funds Flow, and Cash Costs
Exhibit 18: Financial Results – Production
Source: Storm Resources Ltd.
Exhibit 19: Financial Results – Funds Flow
Source: Storm Resources Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Exhibit 20: Financial Results – Cash Costs
Source: Storm Resources Ltd.
Risks
Risks to Storm Resources Include:
1. Cash flow exposure to fluctuations in energy prices. In this case the company is specifically
exposed to lower oil prices (WTI and Edmonton Par) and gas prices (HHub and AECO pricing).
2. Foreign exchange rates, more specifically the relationship between the Canadian and US dollar.
3. Due to the nature of its operations, Storm also faces risks associated with weather-related
interruptions, dry holes, restricted access to facilities, unplanned pipeline shutdowns, and
unexpected production delays.
4. The company is exposed to the risk that there could be unexpected increases in decline rates
specific to its wells or plays. It is also exposed to potentially lower corporate production volumes,
resulting in lower cash flow. Some of the company’s operations are in unexplored/less explored
areas and the risk for dry holes or lower production wells could be higher. For Storm, this
specifically relates to Umbach lands to the West and Nig areas.
5. Unexpected cost overruns or increasing costs of drilling/completing wells and infrastructure.
6. Change in government policies (local, provincial and federal); specifically as it relates to royalty
rates and the treatment of oil and gas production.
7. Interest rate fluctuations could also negatively impact net income and cash flow.
8. Some of Storm's acreage is non-operated in nature; therefore the company is at risk of changes
in corporate direction by the operator. The company is also at risk of higher funding requirements
if operators in the area increase the number of wells to drill.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 17 of 24
Canada Research | Page 18 of 24
Company Citations
Company Name
Arc Resources Ltd.
Artek Exploration Ltd.
Chinook Energy Inc.
Husky Energy Inc.
Kelt Exploration Ltd.
Paramount Resources Ltd.
Storm Resources Ltd.
Ticker
ARX
RTK
CKE
HSE
KEL
POU
Exchange
TSX
TSX
TSX
TSX
TSX
TSX
Currency
C$
C$
C$
C$
C$
C$
Closing Price
29.50
2.86
2.05
31.08
12.23
65.20
RJ Rating
UR
2
2
2
UR
1
RJ Entity
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
RJ LTD.
Notes: Prices are as of the most recent close on the indicated exchange and may not be in US$. See Disclosure section for rating definitions.
Stocks that do not trade on a U.S. national exchange may not be registered for sale in all U.S. states. NC=not covered.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Canada Research | Page 19 of 24
IMPORTANT INVESTOR DISCLOSURES
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ANALYST INFORMATION
Analyst Compensation: Equity research analysts and associates at Raymond James are compensated on a salary and bonus system.
Several factors enter into the compensation determination for an analyst, including i) research quality and overall productivity, including
success in rating stocks on an absolute basis and relative to the local exchange composite Index and/or a sector index, ii) recognition from
institutional investors, iii) support effectiveness to the institutional and retail sales forces and traders, iv) commissions generated in
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compensation levels for analysts at competing investment dealers.
Analyst Stock Holdings: Effective September 2002, Raymond James equity research analysts and associates or members of their
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positions five days after the rating has been lowered to Underperform. The Analyst and/or Associate or a member of his/their
household has a long position in the securities of Storm Resources Ltd.
The views expressed in this report accurately reflect the personal views of the analyst(s) covering the subject securities. No part of said
person's compensation was, is, or will be directly or indirectly related to the specific recommendations or views contained in this
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RATINGS AND DEFINITIONS
Raymond James Ltd. (Canada) definitions: Strong Buy (SB1) The stock is expected to appreciate and produce a total return of at least
15% and outperform the S&P/TSX Composite Index over the next six months. Outperform (MO2) The stock is expected to appreciate and
outperform the S&P/TSX Composite Index over the next twelve months. Market Perform (MP3) The stock is expected to perform
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 20 of 24
Storm Resources Ltd.
generally in line with the S&P/TSX Composite Index over the next twelve months and is potentially a source of funds for more highly
rated securities. Underperform (MU4) The stock is expected to underperform the S&P/TSX Composite Index or its sector over the next
six to twelve months and should be sold.
Raymond James & Associates (U.S.) definitions: Strong Buy (SB1) Expected to appreciate, produce a total return of at least 15%, and
outperform the S&P 500 over the next six to 12 months. For higher yielding and more conservative equities, such as REITs and certain
MLPs, a total return of at least 15% is expected to be realized over the next 12 months. Outperform (MO2) Expected to appreciate and
outperform the S&P 500 over the next 12-18 months. For higher yielding and more conservative equities, such as REITs and certain MLPs,
an Outperform rating is used for securities where we are comfortable with the relative safety of the dividend and expect a total return
modestly exceeding the dividend yield over the next 12-18 months. Market Perform (MP3) Expected to perform generally in line with the
S&P 500 over the next 12 months. Underperform (MU4) Expected to underperform the S&P 500 or its sector over the next six to 12
months and should be sold. Suspended (S) The rating and price target have been suspended temporarily. This action may be due to
market events that made coverage impracticable, or to comply with applicable regulations or firm policies in certain circumstances,
including when Raymond James may be providing investment banking services to the company. The previous rating and price target are
no longer in effect for this security and should not be relied upon.
Raymond James Latin American rating definitions: Strong Buy (SB1) Expected to appreciate and produce a total return of at least 25.0%
over the next twelve months. Outperform (MO2) Expected to appreciate and produce a total return of between 15.0% and 25.0% over
the next twelve months. Market Perform (MP3) Expected to perform in line with the underlying country index. Underperform (MU4)
Expected to underperform the underlying country index. Suspended (S) The rating and price target have been suspended temporarily.
This action may be due to market events that made coverage impracticable, or to comply with applicable regulations or firm policies in
certain circumstances, including when Raymond James may be providing investment banking services to the company. The previous
rating and price target are no longer in effect for this security and should not be relied upon.
Raymond James Euro Equities, SAS rating definitions: Strong Buy (1) Expected to appreciate, produce a total return of at least 15%, and
outperform the Stoxx 600 over the next 6 to 12 months. Outperform (2) Expected to appreciate and outperform the Stoxx 600 over the
next 12 months. Market Perform (3) Expected to perform generally in line with the Stoxx 600 over the next 12 months. Underperform (4)
Expected to underperform the Stoxx 600 or its sector over the next 6 to 12 months. Suspended (S) The rating and target price have been
suspended temporarily. This action may be due to market events that made coverage impracticable, or to comply with applicable
regulations or firm policies in certain circumstances, including when Raymond James may be providing investment banking services to the
company. The previous rating and target price are no longer in effect for this security and should not be relied upon.
In transacting in any security, investors should be aware that other securities in the Raymond James research coverage universe might
carry a higher or lower rating. Investors should feel free to contact their Financial Advisor to discuss the merits of other available
investments.
Suitability Categories (SR): Total Return (TR) Lower risk equities possessing dividend yields above that of the S&P 500 and greater
stability of principal. Growth (G) Low to average risk equities with sound financials, more consistent earnings growth, at least a small
dividend, and the potential for long-term price appreciation. Aggressive Growth (AG)
Medium or higher risk equities of companies in
fast growing and competitive industries, with less predictable earnings and acceptable, but possibly more leveraged balance sheets. High
Risk (HR) Companies with less predictable earnings (or losses), rapidly changing market dynamics, financial and competitive issues,
higher price volatility (beta), and risk of principal. Venture Risk (VR) Companies with a short or unprofitable operating history, limited or
less predictable revenues, very high risk associated with success, and a substantial risk of principal.
RATING DISTRIBUTIONS
Coverage Universe Rating Distribution
Investment Banking Distribution
RJL
RJA
RJ LatAm
RJEE
RJL
RJA
RJ LatAm
RJEE
Strong Buy and Outperform (Buy)
69%
56%
50%
45%
35%
23%
0%
0%
Market Perform (Hold)
28%
40%
50%
42%
27%
8%
0%
0%
Underperform (Sell)
3%
5%
0%
13%
20%
0%
0%
0%
RAYMOND JAMES RELATIONSHIP DISCLOSURES
Raymond James Ltd. or its affiliates expects to receive or intends to seek compensation for investment banking services from all
companies under research coverage within the next three months.
STOCK CHARTS, TARGET PRICES, AND VALUATION METHODOLOGIES
Valuation Methodology: The Raymond James methodology for assigning ratings and target prices includes a number of qualitative and
quantitative factors including an assessment of industry size, structure, business trends and overall attractiveness; management
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Canada Research | Page 21 of 24
effectiveness; competition; visibility; financial condition, and expected total return, among other factors. These factors are subject to
change depending on overall economic conditions or industry- or company-specific occurrences.
Target Prices: The information below indicates our target price and rating changes for SRX stock over the past three years.
Valuation Methodology: Our valuation methodology effectively looks at paying a fair price for a given business model where we
will pay up to a given target price that will still offer us a risk adjusted 1.8-2.0:1 investor recycle ratio over the time taken to
consume the company’s opportunity capture.
RISK FACTORS
General Risk Factors: Following are some general risk factors that pertain to the projected target prices included on Raymond James
research: (1) Industry fundamentals with respect to customer demand or product / service pricing could change and adversely impact
expected revenues and earnings; (2) Issues relating to major competitors or market shares or new product expectations could change
investor attitudes toward the sector or this stock; (3) Unforeseen developments with respect to the management, financial condition or
accounting policies or practices could alter the prospective valuation.
Risks - Storm Resources Ltd.
1. Cash flow exposure to fluctuations in energy prices. In this case the company is specifically exposed to lower oil prices (WTI and
Edmonton Par) and gas prices (HHub and AECO pricing).
2. Foreign exchange rates, more specifically the relationship between the Canadian and US dollar.
3. Due to the nature of its operations, Storm also faces risks associated with weather-related interruptions, dry holes, restricted access to
facilities, unplanned pipeline shutdowns, and unexpected production delays.
4. The company is exposed to the risk that there could be unexpected increases in decline rates specific to its wells or plays. It is also
exposed to potentially lower corporate production volumes, resulting in lower cash flow. Some of the company’s operations are in
unexplored/less explored areas and the risk for dry holes or lower production wells could be higher. For Storm, this specifically relates to
Umbach lands to the West and Nig areas.
5. Unexpected cost overruns or increasing costs of drilling/completing wells and infrastructure.
6. Change in government policies (local, provincial and federal); specifically as it relates to royalty rates and the treatment of oil and gas
production.
7. Interest rate fluctuations could also negatively impact net income and cash flow.
8. Some of Storm's acreage is non-operated in nature; therefore the company is at risk of changes in corporate direction by the operator.
The company is also at risk of higher funding requirements if operators in the area increase the number of wells to drill.
1. Cash flow exposure to fluctuations in energy prices. In this case the company is specifically exposed to lower oil prices (WTI and
Edmonton Par) and gas prices (HHub and AECO pricing).
2. Foreign exchange rates, more specifically the relationship between the Canadian and US dollar.
3. Due to the nature of its operations, Storm also faces risks associated with weather-related interruptions, dry holes, restricted access to
facilities, unplanned pipeline shutdowns, and unexpected production delays.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 22 of 24
Storm Resources Ltd.
4. The company is exposed to the risk that there could be unexpected increases in decline rates specific to its wells or plays. It is also
exposed to potentially lower corporate production volumes, resulting in lower cash flow. Some of the company’s operations are in
unexplored/less explored areas and the risk for dry holes or lower production wells could be higher. For Storm, this specifically relates to
Umbach lands to the West and Nig areas.
5. Unexpected cost overruns or increasing costs of drilling/completing wells and infrastructure.
6. Change in government policies (local, provincial and federal); specifically as it relates to royalty rates and the treatment of oil and gas
production.
7. Interest rate fluctuations could also negatively impact net income and cash flow.
8. Some of Storm's acreage is non-operated in nature; therefore the company is at risk of changes in corporate direction by the operator.
The co
Additional Risk and Disclosure information, as well as more information on the Raymond James rating system and suitability
categories, is available for Raymond James at rjcapitalmarkets.com/Disclosures/index and for Raymond James Limited at
www.raymondjames.ca/researchdisclosures.
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Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Storm Resources Ltd.
Canada Research | Page 23 of 24
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RJL is a member of the Canadian Investor Protection Fund. ©2014 Raymond James Ltd.
Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2
Canada Research | Page 24 of 24
EQUITY RESEARCH
HEAD OF EQUITY RESEARCH
DARYL SWETLISHOFF, CFA
Storm Resources Ltd.
RAYMOND JAMES LTD. CANADIAN INSTITUTIONAL EQUITY TEAM WWW.RAYMONDJAMES.CA
INSTITUTIONAL EQUITY SALES
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CONSUMER
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416.777.7188
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HEAD OF PUBLISHING | SUPERVISORY ANALYST
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LONDON
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PRECIOUS METALS
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PRECIOUS METALS
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URANIUM | JR EXPLORATION & DEVELOPMENT
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0.207.426.5632
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INSTITUTIONAL EQUITY TRADING
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Raymond James Ltd. | 2100 – 925 West Georgia Street | Vancouver BC Canada V6C 3L2