Looking for the next energy runner!
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The concept is there without a doubt, but implementing the infrastructure is the tough part. Boone Pickens has the right idea and we are firm believers in eliminating foreign oil which is why we only invest in North America. Yes we do support some Canadian development but personally I feel in the long term they are going to be our major resource allies.
Thanks for the welcome. I agree it is pretty intense the numbers when you really look at it but that rarely happens for the common American. I just watched a great video by an energy banker the other day that included discussion of the transfer of wealth to other countries. Naturally the facts point to national security when it comes to what appears to be frivolous wars. Not saying I agree by any means but it all becomes clear when you look at it from the oil perspective.
Thanks for the info. We will be keeping tabs.
Valid points for sure. Usually when you have a deal this large you don't need to hype it ahead of time. I am interested none the less.
Wowza that is intense. Same management carrying forward or reverse merger coming?
$42M in assets is an impressive number and the release seems to support production on these leases. Is there any DD on this private company besides this?
Interesting comment, we are very bullish about domestic oil production but don't see a lot that can be done to meet America's energy demand without all the importing in the short-mid terms. Any thoughts?
Seaohtoo - Has there already been an announcement or release from the Company about the makings of a r/m or r/s? TIA
Can you point me in the direction of a summary of their current operations? Thanks!
Khaliis - is this company going through a r/s? TIA
That is quite a move, any highlights what might make this one move like that?
DD is someone sending out a mailer on this stock?
That is quite a drop after the last rally, are any of your guys buying down here?
Yeah I would assume after the record date many would just bought for the divy would sell. Looks like it could be a buying opportunity.
Plugger - My interest in energy stocks, don't know anything about the past here just read where the poster I replied to said something negative about the past so I assumed a r/s may of occurred.
Thanks for answering my question. My interest is what lies ahead, so any DD would be appreciated.
What's the story here, they do a reverse split or something?
Big drop in price today, has to do with the divy I assume?
Very thinly traded but that can be a good thing :)
Operations:
The Eagle Ford shale oil and gas development boasts initial gas production rates that range from 5 million cubic feet (Mcf) per day to rates in excess of 20 Mcf per day. Those Eagle Ford wells more prone to oil production have initial rates exceeding 1,000 barrels of oil per day. Horizontal wells as deep as 14,000 feet below the surface are being drilled, with horizontal lateral sections in the range of 3,000 to 4,000 feet.
The development also offers these attractive features:
Immediate drilling activity of 2,300 acres in Live Oak County
Ability to participate in 3,400 acres in Wilson County
Additional 20,000 acres have been committed at very attractive lease rates
These profitable facts have appealed to numerous companies. Among them is Pioneer Natural Resources, which has agreed to sell a 45 percent interest in 212,000 net acres in the Eagle Ford Shale to Reliance Industries (INDIA) for $1.13 billion, thereby setting the benchmark for transactions in this emerging shale play. Pioneer Natural Resources has plans to drill up to 140 wells in the Eagle Ford Shale by 2013, with an estimated production of 41 million barrels of oil equivalent per day. Pioneer will also develop an extensive gathering network for $275 million and several processing plants in a JV with Reliance Industries.
Companies involved
Some of the other companies that have achieved recent success in the Eagle Ford shale play include:
EOG Resources has drilled at least 17 wells in the Eagle Ford and is experiencing the average well initial-producing rate of 800 barrels per day (BPD). EOG has more than 500,000 acres under lease in the Eagle Ford and has a six-rig active drilling program.
Petrohawk Energy Corporation has an eight-rig drilling program in three areas of development. Each of these areas has the opportunity for large-scale development. Petrohawk has 360,000 acres in the Eagle Ford and is constructing extensive natural gas and crude oil gathering systems.
Murphy Oil has two rigs drilling in the trend, where it has over 200,000 acres. A recent well had an initial flow rate of 1,460 barrels of oil per day and 1.25 Mcf of gas per day.
Burlington is a subsidiary of ConocoPhillips and has two wells producing at rates of 3 to 7 Mcf per day with associated oil rates of 400 to 700 BPD.
Other operators with significant acreage and production include Burlington Resources Oil and Gas, Anadarko, Chesapeake Energy, St. Mary Land and Exploration, El Paso, Cabot Oil and Gas, and Swift Energy. A number of smaller independents are actively leasing and drilling in the play.
Pipelines
Several major pipelines have announced projects to move product out of the Eagle Ford Shale. Among them are:
Boardwalk Pipeline (BWP) and Southcross Energy, LLC, have announced a joint venture to provide infrastructure solutions to natural gas producers in South Texas.
Enterprise Product Partners plans to install 350 miles of pipelines with a capacity of 600 Mcf/d, build a new natural gas–processing facility, and add a new NGL fractionator at the Mont Belvieu complex near the Houston Ship Channel.
Eagle Ford Gathering, LLC, a 50/50 joint venture between Kinder Morgan Energy Partners, L.P. (NYSE: KMP) and Copano Energy, L.L.C. (NASDAQ: CPNO) have signed a definitive long-term gas services agreement with SM Energy Company (formerly St. Mary Land & Exploration Company).
Under the terms of the agreement, SM Energy will commit up to 200,000 MMBtu per day of Eagle Ford Shale natural gas production over a 10-year term from LaSalle, Dimmit and Webb counties in Texas. Eagle Ford Gathering will provide gathering, transportation and processing services and will construct approximately 85 miles of 24- and 30-inch pipeline from SM Energy’s acreage in the western Eagle Ford Shale play to Kinder Morgan’s Freer compressor station in Duval County, Texas. The pipeline is expected to begin service during the summer of 2011.
More recent due diligence:
We believe that now is an excellent opportunity to start getting into the energy equities. We’ve been very bullish on Oil for a while now. We appreciate Devon Shire’s due diligence and suggest reading his latest article Petrobank Energy: An Exceptional Risk / Reward Opportunity.
I’m a man of few stocks. I’m not sure why, but I’ve always been that way. I guess I figure that if you have what you think is an exceptional idea then you better make sure that when it works out it makes a difference to your financial well being.
I’m far from mistake free (ask me about ATPG which is a work in progress), but this philosophy has worked out pretty well for me. The most important part of applying an investing approach like this is making sure that the worst case scenario is one that you can live with.
In other words as Pabrai says “Heads I win, tails I don’t lose much”.
And being a man of few stocks I’m very pleased to introduce you to what I think is an exceptional opportunity in a Canadian oil company called Petrobank Energy (PBEGF.PK).
In my opinion we can modify the Pabrai saying to “Heads I win huge, tails I win pretty big”.
I’m going to give you a high level recap of Petrobank and will in future articles dig further into the details.
The investment thesis is actually pretty simple. There are four parts to Petrobank:
110,000,000 shares (58%) of Petrobakken. Current share price of PBN is $23 which is a market value of $2.5bil.
66,000,000 shares (65%) of Petrominerales. Current market cap of PMG is $1.65bil.
A heavy oil business unit that sits within the parent company that has 670 million BOE.
Ownership of a potentially game changing oil sands extraction technology that could be worth billions.
Now, as I have boldly claimed above, I’m focused on rule #1 first and foremost which is trying to make sure I don’t lose any money. Petrobank itself has 106,000,000 shares outstanding with a current price of about $40 per share. That is a market cap of $4.2bil. The company has minimal net debt. The shares owned in just 1) and 2) above are worth in the market today $2.5bil + $1.6bil = $4.1bil.
Petrobank market cap = $4.2bil
Market cap of the two public subs = $4.1bil
So the market is implying that 670 million BOE and the THAI technology are worth $100mil. I know, it is ridiculous.
http://turnkeyoil.com/2010/10/21/100-oil-coming-we-think-so-are-buying-oil-equities-opportunities-petrobank-energy-is-one-of-them/
Research from 08/2009
Petrobank Energy and Resources (PBG-TSX; $35.97) announced yesterday it was creating a 37,000 bopd Bakken-focused oil producer by merging its Canadian Business Unit (CBU) with TriStar Oil and Gas (TOG-TSX; $11.51) to create a new company, Petrobakken.
The cash and stock transaction gives TriStar a value of $14.75 cash, a 29% premium over the previous 10 days weighted average price. For my Bulletin subscribers, it was a 35% gain in one month on TriStar, since I bought the stock at $10.70 on July 2, and profiled it in my second issue. (My second stock purchase from that issue is up 71%.)
Should investors take their quick profits or hold on? At first blush it has all the hallmarks of a Bulletin stock selection:
oil weighted
low cost, high profit oil
large undeveloped land position - over 1300 low-to-no risk undeveloped well locations
debt to cash flow ratio will be less than 1:1
But the global oil price has been on a steep rise while the economy still languishes and crude stocks in the US are up. If the global oil price has a serious pullback, no stock will be immune.
The press release says the $14.75 offer is worth $3.75 cash and a 0.3989 Petrobakken share, or $27.57 in the new company (total value=$31.32 per TOG share). Let’s take a quick look at what the pro-forma numbers for a Petrobakken valuation might show:
These are numbers from the press release and me:
Shares Issued: 172 million
Production: 37000 boe/d, 95% oil
Dividend: $0.96/year
Debt* (my number): $570 million (my number)
Annual cash flow: $702.2 million (my number, based on US$70 oil and US$-CAD$ of 1:1)
*(They will have $950 million in debt before they sell off 9500 boe/d production in Alberta assets, 56% of which is natural gas. If they conservatively receive $40,000 per flowing barrel -- I see that several junior producers with 50/50 gas/oil production are trading at an average enterprise value of $42,000 -- they would receive $380 million, leaving $570 million debt.)
What should this company trade at? My numbers show Tristar was bought out at $2.73 billion, or $109,200 per flowing barrel, so it should not trade for less than that - otherwise, why merge? As of July 31, BMO Nesbitt Burns shows Crescent Point’s (CPG-TSX) trades at about $155,000 per flowing barrel. Crescent Point is the best comparable as they have similar production levels, costs and dividends.
Management believes their $0.96 dividend will be 3%, which equates to a $32 share price. The valuation of my remaining stock in the new company is $27.57, so if this $32/share valuation makes sense, I will hold it. This gives the company a market cap of $32 x 172M=$5.5 billion, and an enterprise value (market cap $5.5 B+ debt $570M) of $6.07 billion.
Divide that by 37000 boe/d production and you get a valuation of $164,162 per flowing barrel. Petrobakken will be 5% gas, and CPG has 13% gas, so that incremental value makes sense, but I would suggest there is not much room in this metric for increased valuation.
Another metric the industry uses is Enterprise Value over Cash Flow, which my numbers show 8.6x for the new Petrobakken. This is just above average in the Canadian oil patch -- but the comparables are mostly gas weighted companies. I would easily expect the heavily oil weighted Petrobakken to get a 10-11x multiple. So even at $32/share, I think there’s room for an increased valuation.
On a cash flow basis, my $702 million annual cash flow divided by 172 million shares=$4.08 cash flow per share. $32 would be just under 8x cash flow, compared to Crescent Point’s 8.5-9x. So there is room for increased valuation there too.
SO….CONCLUSION…I hope you were able to stay with me through all those numbers. I’m holding my stock, now valued at $27.57, because even at $32 - another 16% for me and subscribers who bought TOG - the stock appears to have some valuation room, even without growth.
As long as the global oil price doesn’t fall into the toilet again - which I see as unlikely (this market is not just about fundamentals!) - then Petrobakken’s growth should get recognized in the market over the coming years as these 1300 low cost, undeveloped Bakken locations get drilled. The new trading symbol will be PBN:TSX.
Really, what these two companies have done with Petrobakken is give North American institutional investors a second way to play the Bakken, after Crescent Point Energy. CPG has slightly more production, slightly lower costs, slightly higher dividend than Petrobakken.
http://www.resourceinvestor.com/News/2009/8/Pages/Petrobank-Energy-and-Resources.aspx