Why are Nuvista’s Shares Up 15% in the Last 5 Days?

It’s been a great week for this promising energy play.

Karen Thomas, MSc, CFA

Karen is a stock market enthusiast focused on uncovering those stocks that she believes the market has mispriced. She does this through fundamental and quantitative analysis of companies and their industries, as well as a study of future opportunities and trends. She holds a Masters degree in Finance, the CFA designation, and has over 20 years of experience in the investment management industry. Having worked at a major pension fund, as well as two leading mutual fund firms as an analyst and portfolio manager, she has solid investing expertise which she aims to share with her readers.

Published November 8, 2013 3:14 pm EST

Nuvista (TSX: NVA) shares have risen 15% in the last 5 days, on high trading volume. The average volume in the last 3 months is 552,020. On November 5^th and 6^th, the shares were up on volume of over 1.1 million shares. What precipitated this rise?

Strong Third Quarter Results Announced

Even though production decreased by 22% to 18,532 barrels of oil equivalent per day (Boe/d), cash flow per share at $0.20 versus $0.17 increased over the same period last year. And though it was down, production was better than expected due to stronger than expected well performance.

Cash flow increased despite lower production due to greater efficiencies, as seen in record low drilling costs and completion costs which were 13% lower than expected. Furthermore, higher value condensate production represented a greater percent of total production. It currently stands at 33% of production.

Strong Production Growth Expected

Following the better than expected performance in the third quarter, management has increased its production forecast for 2013. Average production for the year is now expected to be 17,000 Boe/d to 17,400 Boe/d. This is slightly above their previous forecast of between 16,250 Boe/d and 17,000 Boe/d.

Year over year production per share growth in 2014 is expected to be 15%.

Increase in Resource Estimate

An independent resource evaluation of Nuvista’s condensate-rich Wapiti Montney was recently updated as a result of Nuvista’s drilling activity. The evaluation shows a more than doubling of resource while still covering only half of Nuvista’s landholdings in the area. It does not yet include any discovered resources in the Lower Montney zone. Drilling will continue in 2014 in the Lower Montney Zone and based on this, investors should be anticipating a further increase in the area’s resource estimate in 2014.

Bottom Line

Nuvista’s strategy to reduce costs and increase production is finally beginning to bear fruit. The company has been performing very well in terms of execution and cost control, and this performance has given the market something to smile about.

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Fool contributor Karen Thomas owns shares of NuVista. The Motley Fool has no positions in the stocks mentioned above at this time.