Raging River: Endure The Pain

  • Raging River agreed to merge with Baytex for a small premium. After today’s selloff, the market is saying both are better at it alone.
  • Raging River is worth somewhere between C$7.25 and C$10.00 per share.
  • Baytex was trading at C$5.10 last Friday, which would value Raging River at C$6.94 per share, which is in the low end of the price range above.
  • Investing in Raging River is now like investing in Baytex: It’s a leveraged play to future oil prices.

Click here to read the entire article on Seeking Alpha.

Point Loma Resources: The Duvernay Pop

This was a well deserved stock surge today.

PLX TMX Money

Source: TMX Money

We already know what happened:

But still, there is some value in the company. Indeed, Point Loma owns a substantial number of prospective Duvernay oil sections.

Cadotte Capital Partners, May 27, 2018

There is definitely value hidden in those sections.

Time for the market to realize Gear Energy also has Duvernay lands for sale.

Disclosure: I am long GXE, PLX. Not for republication on Seeking Alpha.

Gear Energy: More On The Duvernay Sale

We have more information on the sale of the Duvernay land held by Gear. Final bids are to be submitted on or before June 21, 2018.

GXE Sayer Energy Advisors June 2018

Daily Oil Bulletin, May 24, 2018

Duvernay rights amount to 6,640 contiguous acres, situated in the oil window, and really close to land owned by both Vesta Energy and Raging River Exploration.

RRX Duvernay Land

Source: Raging River Exploration, March 2018 Corporate Presentation

The potential location of the lands of Gear are highlighted in the red circle above.

Those have the potential to be very valuable, especially for players like Vesta and Raging River. Both are already well-established in the play.

Those Duvernay rights are worth C$13M to C$20M at current market value.

Disclosure: I am long GXE. Not for republication on Seeking Alpha.

Point Loma Resources: The Duvernay Oil Play

The story of Point Loma has been very much different than what I was thinking. Meaning: The stock has been a big disappointment.

PLX StockCharts.com May 27

Source: StockCharts.com

But still, there is some value in the company. Indeed, Point Loma owns a substantial number of prospective Duvernay oil sections. Let’s value this land using the recent hostile takeover announcement of Iron Bridge Resources by Velvet Energy.

The Offer values Iron Bridge at an enterprise value of approximately $120 million, which implies a multiple of 12.2x Iron Bridge’s 2018 consensus EBITDA.

Velvet Energy Press Release, May 22, 2018

The real prize for Velvet is the 49,600 net acres of Duvernay land Iron Bridge owns. In other words, Velvet is paying C$2,400 per acres for a total price of C$120M. Point Loma owns 13,600 net acres. Using the same valuation, Point Loma is worth C$0.60 per share.

However, there is some negatives that could impact the value of Point Loma’s land: The land isn’t contiguous, and its potential is yet to be confirmed. But, the price paid by Velvet is somewhat lower than previous transactions of around C$3,000 per acres, and the Duvernay oil play is really hot. Actually, Gear Energy just hired bankers to sell its prospective oil rights.

As such, we can say there is value buried inside the company. I would still be careful with Point Loma (I wasn’t, unfortunately). The company has negative netbacks: It’s burning money to keep producing its natural gas.

The turn of the tide would be positive cash flow from operations. Given the current challenging natural gas environment in Western Canada, it can’t happen unless the company gets liquids off the ground.

Disclosure: I am long PLX. Not for republication on Seeking Alpha.

MEG Energy: A Strong Vote Of Confidence

MEG Energy Corp. (TSX:MEG) (“MEG” or the “Company”) is pleased to announce that it has entered into an agreement with Wolf Midstream Inc. (“Wolf”) for the sale of the Company’s 50% interest in Access Pipeline and 100% interest in Stonefell Terminal (the “Transaction”) for cash and other consideration of $1.61 billion, representing 13.4x 2018 annualized EBITDA.

MEG Energy Press Release, February 8, 2018

Finally, I have been waiting for a year. Here is what I said in March of last year:

I sold what was left of my position in MEG Energy (MEG) for a sub-50% gain. WTI at sub-$50 won’t be enough for MEG to sell its pipeline at a good price. Hence share price appreciation will be limited in the short-term.

Cadotte Capital Partners, March 13, 2017

Share appreciation was indeed nonexistent for the last year. A combination of higher oil prices and lower production costs lead Wold Midstream to finally buy the 50% interest remaining in the Access Pipeline. Wolf, a subsidiary of the CPPIB, believes MEG will be able to supply its pipeline with plenty of crude for the next 30 years.

MEG Energy got the same price than Devon Energy, despite its much smaller size. It’s a strong vote of confidence in the operations of MEG Energy. The proceeds will go to repaying some of the debt and accelerate growth plans.

Disclosure: I am long MEG. Not for republication on Seeking Alpha.