Analysts React To Compton Petroleum's Move To Natural Gas

Compton Petroleum Corp. (NYSE: CMZ - News) is shifting its strategic direction to natural gas resource plays and it lowered its 2007 production guidance in light of the transition. The company now says it will produce an average of between 31,000 and 32,000 barrels of oil equivalent a day during the year, lowering its previous estimate by about 6,000 boe/d.

The decline incorporates Compton’s proposed acquisition of Stylus Energy Inc. [STY/TSX] and a planned sale of oil assets in Alberta’s Peace River Arch by the fall. The company also boosted its capital spending plan for the year by 20% to $450-million as a result of plans to drill 435 wells instead of 330. More wells is an indication of the shift towards shallow gas resource plays, which require a lot more drilling.

The shift is expected to cut into near-term cash flows and it sparked a series of adjustments among analysts.

Compton’s shares are down almost 20% in the last 12 months and they hovered around C$10.55 before and after the company recently confirmed the new strategic direction.

Octagon Capital maintained its ‘hold’ rating but lowered its target price for Compton to C$12 from C$14, based on expectations that cash flow for the year will decline some C$100-million to C$210-million.

UBS Securities cut its target price to C$13 from C$15 and continued to rate Compton shares a ‘buy,’ while RBC Capital Markets reduced its price target to C$12 from C$13 with a continued ‘sector perform’ rating.

After digesting the changing guidance and strategy, Dundee Securities maintained its 12-month target at C$14.50 as well as its ‘market perform’ rating.