Portfolio Update: Adding To My Energy Holdings

Last Wednesday was a test for energy investors. Did you resist the urge of following the masses by selling your energy holdings?

I resisted. I added to my favorite energy holdings last Wednesday, which are Gear Energy (GXE), Point Loma Resources (PLX) and Raging River Exploration (RRX). Those companies can survive low oil prices and then thrive once oil prices rise.

Here are my recent moves in the market.

First, I sold all the lithium explorers I bought last month: Critical Elements (CRE), Nemaska Lithium (NMX) and Natan Resources, now Enforcer Gold (VEIN). I was lucky to turn out a profit on this: Critical Elements skyrocketed 50% after investors learned the company had hired a communication firm for a year.

This experience would be cash neutral at best if it wasn’t for this gain. Just for example: Enforcer Gold switched its focus to gold exploration after I bought the stock for its lithium properties. All in all, this is another point to not speculate on the market.

Second, I sold TransGlobe Energy (TGL). It turns out the Canadian assets aren’t as transformative as I thought they would be. I first estimated netbacks at C$11.50 per barrel for total consideration of 6X 2017 FFO. Instead, netbacks were as low as C$6 per barrel in Q4, which implies an estimated price tag of over 10X 2017 FFO.

The Cardium light oil acreage should provide interesting returns according to past presentations from Angle Energy. Management will drill these lands only in late 2017. Therefore it will take some time before shareholders see something good from these assets.

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.

I added massively to my positions in Point Loma Resources, Gear Energy and Raging River Exploration using these gains.

I bought back Tidewater Midstream and Infrastructure (TWM) on Friday after selling the stock two weeks ago. Support was limited below the 200-day moving average.

TWM StockCharts.com March 13

Low AECO prices in Western Canada may delay growth projects by producers and lower flows in pipelines owned by TWM in the short-term.

I am now heavily positioned in the oil and gas sector with a strong presence in junior Canadian E&Ps with low leverage and high netbacks. Those companies can survive at $50 WTI and thrive at higher prices.

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

Portfolio Update: Moving Chips To My Winners

I am now well positioned for 2017 after another series of move in my portfolio.

  • I added to my positions in Painted Pony Petroleum (PPY) and in Gear Energy (GXE) by selling part of my position in MEG Energy (MEG). I am preparing my portfolio for lower oil prices.
  • I opened a position in Tidewater Midstream & Infrastructure (TWM).
  • I bought back shares in TransGlobe Energy (TGL). TransGlobe’s Canadian transformation is a game changer to me. Plus the acquisition metrics are very good for TransGlobe shareholders.
  • I opened a position in Point Loma Resources (PLX).

I made a quick analysis for Point Loma Resources after hearing about the stock on Seeking Alpha. The stock is indeed trading at a very low 6.3X Year-End 2016 FFO. I estimate FFO of C$17.92 per barrel at year-end 2016. Furthermore, the company holds no debt except for convertible debentures and plans to grow production aggressively next year. In other words, the multiple should be higher.

Other interesting news for Canadian oil and gas producers: lower oil exports from Venezuela and possibly lower transport tariffs from TransCanada.

Lower heavy crude from Venezuela will benefit Canadian heavy oil and tighten the price differential of Canadian heavy oil versus WTI.

Finally, the new push for natural gas pipelines in the Northeastern US will force TransCanada to lower its transportation tariffs. Else it will face a severe decrease in its market share in Eastern Canada.

Disclosure: I am long GXE, MEG, PLX, PPY, TGL, TWM. Not for republication on Seeking Alpha.

Portfolio Update: Aggressive Moves To Start 2017

Here are my trades to start the year:

  • I added to my position in Amaya (AYA). Indeed, bad names will stop appearing in bad actor clause negotiations now that both David Baazov and Daniel Sebag are gone. Plus Amaya’s operations are coming out as very strong.
  • I bought back shares in Corridor Resources (CDH), as you know. It’s now or never for Corridor to move west and grab assets on the cheap before oil heads substantially higher. I need to go long before reading about the acquisition in a press release.
  • I added to my position in MEG Energy (MEG) after the company announced a major refinancing plan.
  • I added to my position in Painted Pony Petroleum (PPY). The company is still undervalued despite being up 60% since I bought it nine months ago.

I also went long lithium by buying all the junior exploration companies operating in Quebec: Critical Elements (CRE), Nemaska Lithium (NMX) and Natan Resources (NRL). I’ll let you know shortly how I narrowed it down to those three companies.

Disclosure: I am long AYA, CDH, CRE, MEG, NMX, NRL, PPY. Not for republication on Seeking Alpha.

Amaya: Why I Sold My Shares

I sold my entire Amaya position for C$20 per share today.

The numbers: We know C$24 per share is the best we can get in the short-term. The deal’s failure will lead to a fall of C$4-5 per share to C$15, the price at which I recently bought.

Selling now ensures me a 30% gain and the possibility of buying back shares at a depressed level should the deal fail. However, I might be leaving money on the table.

Last but not least: the profits can be relocated to other stocks.

Be certain though: I will buy again if the stock hits the C$15 mark.

Not for republication on Seeking Alpha.

Bankers Petroleum: Why I Might Lose Patience

As we all know, Bankers Petroleum’s share price won’t move a lot for some time. First, Geo-Jade Petroleum needs to raise capital to fund its acquisition (read: risk), and second we also need to vote on the deal by the end of May as shareholders. We will see the money in the summer.

The acquisition price of C$2.20 per share means the current arbitrage represents a gain of less than 20%. As you know, I am looking to double down on natural gas by buying Painted Pony Petroleum. Let’s take a look at the stock:

PPY StockCharts.com April 13

Source: StockCharts.com

As we can see, while Bankers didn’t move, Painted Pony did. For the last week, my Bankers position wasn’t a very good performer compared to my next target. Why didn’t I start buying the stock? The stock had clear selling signs when it went under its 50-day moving average last week. I believed that the stock would test again its support level of C$4 per share. Obviously, this reading was wrong. The stock went bullish even though natural gas price was hitting new lows, both in British Columbia and in Alberta.

The stock powered through and tested today a clear resistance level of C$5 per share. This rally might be due to another good news in the natural gas industry: Chesapeake Energy’s credit facility will stay the same, despite the bearish natural gas market. Bankruptcy for one of North America’s largest natural gas producers is out of the question for now. This is good news indeed for the natural gas market!

The next question is, obviously, will the stock climb higher than its resistance level? I’ll be watching the stock very closely in the coming days.

It is interesting to note that if I did bought shares like I should have done at C$4, the return would already be over 20%, more than the current arbitrage for Bankers’ stock. This mistake won’t happen again.

Of course, this is why we shouldn’t always trust technical analysis and jump in the market instead. Should Painted Pony powers through its resistance level, I’ll sell again part of my Bankers position and start building my position in Painted Pony. If the share price falls back, I’ll be patient… But my patience will be short.

Disclosure: I am long BNK.

Bankers Petroleum: Update On My Position

As you know, there has been tremendous activity in Bankers Petroleum’s stock since the sale announcement of the company last week-end. Over 130 million shares were traded in the last four days. This is over half of total shares. This is truly remarkable for a stock that traded with daily volume of about a million shares before the announcement.

Let’s verify the structure of the public shares of the company.

Bankers Petroleum - Public Shares Ownership

Source of ownershipFinancial TimesMorningstarMSNReuters
Insitutions (top 10)19.8%14.6%17.7%N/A
Mutual fundsN/A26.1%32.5%N/A

As you can see, no one really knows who owns what at a given time, but an estimation is possible. Let’s say that 32.7% and 29.3% of total shares are owned by institutions and mutual funds respectively. The management and directors also own 6% of the company. Therefore, the public float is about 32% of total shares.

We already know that the management will vote yes. How will the institutions vote? Some long-term player might be tempted to say no while others, more recent buyers might say yes to cash a very nice profit. It is also difficult to know in which direction mutual funds will vote in the next meeting. From what I read they usually go with the recommendation of the board: this would mean voting yes. The next question is: why is the arbitrage so big?

This massive arbitrage could be related to the acquirer, Geo-Jade. As pointed out in the comment section of my Seeking Alpha article, Geo-Jade is looking to raise capital to fund this acquisition. The large arbitrage must be related to the financing risks related to the acquirer.

I believe that those risks, while present, are overstated. Management would not have gone this far without being sure that Geo-Jade will be able to deliver. Another sign of Bankers’ confidence in Geo-Jade are the recent transactions by insiders. Indeed, three insiders, including the CFO and the CEO, bought 146,200 shares yesterday, March 23.

Finally, here is an update on my position in Bankers. I sold a third of my position today to raise cash and add to my position in Amaya. The current low share price is very appealing for me to buy more. I will hold the rest of my position for the time being. Stay tuned for other updates and happy Easter!

Disclosure: I am long BNK.

Buy MEG Energy Over Encana As I Did

As you know, Encana and MEG Energy were the two finalists of our TSX screening last week. After I dug deeper into the two for the last week, I chose to invest in MEG over Encana.

MEG StockCharts.com March 4

Source: StockCharts.com

Seeing a stock go up 20% after you buy is of course very nice, especially after a rough start for investors in 2016. However, we are still far from claiming victory.

Just to let you know, I am not so sure if my Seeking Alpha article will contain details about Encana or focus entirely on MEG instead. Either way, I’ll write a blog post that compares both companies and further detail my opinion.

Disclosure: I am long MEG.

Short-Term Update For My Position In Amaya

Let’s take a look at Amaya a few weeks after a took a position in the stock. This is the perfect example of why you can’t time the market: black swan events.

Indeed, why didn’t I move a day earlier? I bought my stake a day after the CEO’s announcement of a non-binding proposal to buy the company for C$21 per share.

Therefore this position has cost me an extra C$3 per share, almost a 20% premium. Note that I bought half of the total position I want in the company. Let’s use the same net debt figure that I used in my post on January 30 and to estimate current EV/FY 2016 Earnings multiples:

Amaya - EV/FY 2016 Earnings Multiples ($M)

Share price ($/sh)10.012.515.0
Market cap209226153138
Net debt219821982198
Net income331331331
EV/FY 2016 Earnings13.014.616.1

As you can see, at $13 per share today the stock is still fairly priced considering the growth of the company. However, I believe that the stock is held down by the only major headwind that the company is currently facing: the recent ruling ordering the payment of $870M to the State of Kentucky. Some other headwinds will be better mitigated in the short to medium-term, such as:

  • The value of the USD should be stable in the medium-term.
  • The changes made in PokerStars’ VIP Program should be mitigated: there is no other place as popular as PokerStars to play poker online.
  • The explosive growth won’t be present in the short-term but it is compensated with an acceptable share price.

I’ll still wait before buying my other half. Indeed, the company already said it’s gonna be in the high end of its guidance for 2015. Therefore I see no reason in buying the stock today a month before the earnings release, unless the stock goes back under its 50-day moving average.

Disclosure: I am long AYA.