First Berlin Equity Research has published a research update on Deutsche Rohstoff AG (ISIN: DE000A0XYG76). Analyst Simon Scholes downgraded the stock to ADD and decreased the price target from EUR 54.00 to EUR 51.00.

DRAG’s final 2023 numbers were very close to the preliminary figures published in February. Revenue climbed 18.9% to €196.7m (2022: €165.4m) while EBITDA was 13.8% higher at €158.3m (2022: €139.1m). Revenue growth was driven by volume growth of 33% to 12,762 boepd (2022: 9,594 boepd) as the prices realised by DRAG for oil and gas after hedges fell by 3.5% and 33% respectively. Given the price differential between oil and gas (one barrel of oil equivalent of gas is worth only 20% of a boe of oil) and that gas volume was only half of oil volume, last year’s oil and gas price declines had a roughly equal impact on sales. DRAG invested a record €180m in new wells last year. On a 100% working interest basis, 13.6 new wells started production, all of them in Wyoming. When it began operations in Wyoming in 2021/22, DRAG budgeted for an average reserve of 500,000 barrels of oil per well in the key Niobrara formation. In the 2023 annual report DRAG revealed that after the first 6 to 18 months of production, its Wyoming wells are producing at a rate ca. 15% above that expected for 500,000 barrel wells. We believe higher than budgeted production from new and existing wells was the main reason for the three upwards revisions to 2023 guidance made by DRAG last year. DRAG has so far developed only around 15% of its Wyoming acreage. The robust production figures delivered so far by DRAG in the state bode very well for coming years. However, the average levels of the oil futures strips for 2024 and 2025 are currently 6% and 5% below where they were at the time of our most recent note of 16 April. We now see fair value for the DRAG share at €51.0 (previously: €54.0). As the upside to our price target is below 25% we downgrade the recommendation from Buy to Add.