East West Pete Corp (EWPMF)

[bell345]

http://seekingalpha.com/article/3961805-east-west-petroleum-teaches-scrooge-rake-cash?auth_param=lh1sj:1bfm0af:457fc697ee2c211e5b25938f0c1c4391&uprof=45&dr=1#alt1

Summary

The company has about C$8 million in cash along with a c$10 million market cap and no long-term debt.

Cash flow in the nine-month period was about C$609,000.

The company has permission to purchase and retire up to 10% of its common stock, which should limit downside risk.

Partner NIS is now set to drill the first joint venture well staring in the second quarter in Romania potentially adding a lot of value to the company if successful.

New Zealand prospects, in addition to a cash flow also have speculative projects in the development stage.

It must be nice to be able to sit around all day and collect money. There are companies out there that worked a lot harder and are going bankrupt as a result. But at the end of its third quarter, East West Petroleum Corporation (OTCPK:EWPMF) reported that cash flow from operations was C$609K for the nine-month period. Since its partners have delayed drilling any wells in the current environment, it keeps adding to its cash hoard. There is an occasional well rework or maybe some lease bidding that uses some cash, otherwise the cash pile keeps building. Life can be tough.

However, management is just as tight with its cash as it is managing its assets. Rather than tender for outstanding shares, management applied to purchase the shares on regular transactions. At the close of the stock market on Friday, March 25, 2016, the market cap of the common stock was almost C$10 million. Since the company has almost C$8 million to spend on that market cap, management has permission this time to re-purchase nearly 10% of the company's common stock over the next year. It can re-purchase as much as 2% in any 30 day period, so if the price drops low enough, it will be interesting to see if the company receives permission to purchase more stock. It has the cash flow and the cash balance to do so if it chooses. In any event the company serves as a very large purchaser of its own common stock which will decrease the downside risk to investors for the next 11 months or so. That relatively large amount of cash on the balance sheet will also decrease the downside risk of the common stock.

Plus the company is debt free. It does have some partnership obligations, but it definitely has the cash to meet those obligations at this time. So where is the growth possibilities for a company like this? Clearly, an investor who pays C$.11 per share or US$.08 per share is paying mostly for the cash hoard with just a little left over for the company operations because the cash is roughly four-fifths of the market value of the stock. But subtracting the cash out from the market value and then dividing the remaining market value by the annualized cash flow figure results in a remaining value-to-cash flow of about 2:1. That ratio is exceptionally cheap by any measure, even for cash flow that will decline without new drilling. Few companies at this stage in their development have a ratio anywhere near that, and usually far more debt.

The company is a partner with Tag Oil (OTCQX:TAOIF). Together they share production from an operating lease that usually nets East West Petroleum roughly 200 BOED. Right now, one of the wells is having mechanical difficulties so it is offline, and another well is being evaluated for commercial production. So there is room for growth from the third quarter production, just by fixing one well, and having the other well produce commercially. However, the partnership does not move very quickly at these low commodity prices, but there is some very real room for growth by bring the G1 well onto production (if and when the partners decide to finally do that).