DXIEF DXI Capital Corporation (CE)

Steven Ralston, CFA

Dejour hosted first earnings call: outlined 2011 plans

Dejour (DEJ) announced first quarter results, and management outlined exploration and development plans for 2011. First quarter results benefited from higher oil and gas prices, but the ramp up of production after the implementation of the waterflood has been gradual and did not benefit first quarter results. On the earnings call, management stated that current oil production at Woodrush is 430 BOPD, up 30% from the production level in the first quarter indicating that there is now traction to the ramp up. Third quarter production should be impressive. Due to the adoption of IFRS with its required non-cash warrant expense, the company reported a loss of $2.37 million of $0.02 per diluted share. Without the warrant liability, the loss was $1.21 million of $0.01 per diluted share.

In addition to the improved production profile at Woodrush in the second half of 2011, the company will begin drilling for natural gas at Gibson Gulch, Colorado in the Piceance Basin. Having chosen three sites (PUDs - Proved UnDeveloped reserves) in close proximity to proven wells drilled by Barrett Corp. (BBG:NYSE) or Williams Companies (WMB:NYSE), the first two-to-three wells should be drilled in the fourth quarter this year. After financing the initial wells over the next couple years with non-equity funding, management expects that the remaining wells of the 93 planned in the drilling program will become self-funding in 2014.

In addition, a test well is planned for South Rangely in the second quarter. With two targets to test both the upper and lower Niobrara sections of the Mancos Shale, Dejour is targeting both the oil potential and natural gas.

Also, the day prior to the earnings report, Dejour announced that AJM Petroleum Consultants (independent reservoir engineering consultants) updated the NI 51-101 compliant reserve report on the Woodrush Field. Using data from a 3D reservoir simulator, PV-10 with proved and probable reserves increased 158% from C$17 million to C$44 million.

We reiterate our Outperform rating and price target of $1.00.

For a free copy of the full research report, please email scr@zacks.com with DEJ as the subject.

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