First Berlin Equity Research has published a research update on Deutsche Rohstoff AG (ISIN: DE000A0XYG76). Analyst Simon Scholes reiterated his BUY rating and decreased the price target from EUR 47.00 to EUR 46.00.

2023 sales of €196.5m and EBITDA of €158.2m both came in towards the top end of guidance. Meanwhile, 2023 production rose 32.4% to 12,700 barrels of oil equivalent per day and was above company guidance of 12,000-12,500 boepd. Q4/23 production of 15,300 boepd (the highest in DRAG’s history) benefitted from significantly-above-type curve output at nine new wells in the Niobrara formation in Wyoming, which came on stream last autumn. Net CAPEX also set a new company record €145m in 2023, but thanks to the impact of high net profitability on equity, net gearing remained constant at 42%. Management is guiding towards investment spending of €108m for 2024, but it is possible that this figure will rise if the oil price remains near the current USD80. The mid-point of management EBITDA guidance of €130m-145m is ca. €21m below the 2023 number. However, we note that 2023 EBITDA benefitted from €17m in gains on the disposal of assets in Utah in December and also that DRAG’s current results are an order of magnitude higher than the average EBITDA of €38m booked during 2019-21. Results from wells drilled by DRAG in Wyoming since the company acquired its first acreage in the state in 2020 have been very encouraging. Output from the 16 wells with six month+ production history DRAG and its JV partner, Occidental Petroleum (Oxy), have so far drilled into the Niobrara formation in Wyoming has averaged 15% above type curve six months after the start of production. DRAG/Oxy have sufficient acreage in Wyoming to drill over 200 wells. Over 90% of these potential wells are in the Niobrara formation. Since DRAG announced the acquisition of its first acreage in Wyoming in July 2020, the DRAG share has outperformed the S&P500 Energy Index by over 150%. DRAG’s increasingly impressive track record in Wyoming suggests that this outperformance will continue. We maintain our Buy recommendation, but lower the price target from €47.0 to €46.0 to reflect the ca. 30% decline in the 2024 US natural gas futures strip since our last note of 9 November (gas accounted for ca. 10% of revenue at 9M/23 and ca. 10% of DRAG’s gas production is hedged).