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Summary

  • 3,500 boe/day battery now on stream.
  • $98 million non-core asset disposal completed.
  • Spending on capital programs and dividends within cash flows.
  • All in all a rapidly improving situation with plenty of upside for patient money.

Lightstream Resources (OTCPK:LSTMF) is "tripping the light fantastic" with the announcement of a $98 million non-core asset disposition without the need to reduce production guidance for the year and with the ancillary benefit of reducing the reserve for close-out costs by $17 million. In parallel, the company completed construction of its Swan Hills 3,500 boe/day battery which with almost immediate payback as it reduces costs and increases the amount of sales gas. Lightstream is well on track to meet its 2014 guidance of over $3.19 per share of cash flow with $0.88 in the bag in the first quarter. With cash flow expected to exceed both capital expenditures and dividends the balance sheet will continue to improve for the balance of the year barring setbacks in operations.

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Source: Lightstream

The balance sheet remains highly leveraged with bank debt north of $1 billion and secured notes due in 2020 adding another $970 million in round numbers. The recent asset sales will take a bit out of that, however, and debt is now falling below three times cash flows. Lightstream expects to complete the sale of another $250 million in non-core assets during the remainder of the year.

With about 200 million shares outstanding currently trading in the $7.00 range, Lightstream enterprise value is just over $3 billion U.S. which amounts to roughly 5 times cash flow. At that price, the stock is cheap. The stock has had a good run since its March lows, up about 40%.

(click to enlarge)

I think that run is just beginning and expect to see the stock in double-digit territory within the next year or so on the strength of a very solid exploration and development program coupled with a level of capital discipline the company lacked in prior years.

I am long the stock.

Disclosure: I am long LSTMF. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Source: Trip The Light Fantastic With Lightstream Resources