- Valuation compared to peers points to major upside.
- The management team is prudent and of high quality, and is a great value creator for shareholders.
- The plan to buy back 10% of the public float will provide a floor and boost the share price.
- There have been fundamental changes in the way TGA can do its business and it will clearly benefit shareholders.
- The management team is willing to look for potential M&A opportunities with high level of cash and a pristine balance sheet.
- Intense insider buying and the share buyback will provide a strong floor for the share price.
- The Highway 407 concession in Ontario is a highly valuable asset, and the sale could raise cash for another acquisition.
- There are still great headwinds that remains in the core engineering and construction operations of the company.
- TGA has a pristine balance sheet, with very low debt and high levels of cash and assets.
- New government in place in Egypt is pro-business and favorable to foreign investors.
- Discounted cash flow indicate a value of $6.81 per share, or more than 100% upside.
- Net assets and oil reserves indicate a value of $10.77 per share, or more than 225% upside.
- The 6% dividend is a nice bonus to help you wait until the market realize the tremendous value in TGA.
- The financing costs for 2015 have come down to $235MM.
- Realized price are higher than the WTI spot price.
- Aggressive hedging strategy (60% of production) will minimize liquidity risks in 2015.
- PEGFF needs a Brent price of under 40$/bbl to run out of cash.
- From now on, with bankruptcy out the question, any news will be good news.
- The world oil market will be over supplied by over 1.2 million barrels a day in 2015.
- The world demand growth for oil in non-OECD countries will be strong in 2015.
- The US oil production is still expected to grow in 2015.
- Oil market fundamentals such as US production and demand will need to change before calling the bottom.
- PEGFF’s realized prices are lower than the WTI spot price.
- PEGFF will sell for about $937MM of oil during the fourth quarter of 2014.
- PEGFF will need at least an average price of 60$/bbl to break even in terms of cash this year.
There are benefits to the oil crash. Here is a glimpse of the latest financial statements of Athabasca Oil:
Athabasca Oil - Balance Sheet (C$M)
Source: Q3 2014 Financial Statements
So we have short-term notes which were given as a result of the closing of the Dover oil sands project. When Dover was sold, the company was given C$600M in cash plus C$584M of interest bearing notes (guaranteed by HSBC Canada). The first note will mature on March 2, 2015, the second note will mature on August 28, 2015 and the third and final note will mature on August 29, 2016. By August 28, 2015, the company will have C$450M more in cash and C$450M less in short-term note.
The company has two types of debt: senior secured second lien notes (SSLN), that can be paid back by Athabasca for a small premium of 103.75% of the principal and senior secure term loans (SSTL) that can be paid out for 102% of the principal plus present value of interest from the date of redemption to May 7, 2015.
So let’s say the company pays back its SSLN now, which will amount to C$571M. Furthermore, add 102% of the SSTL, which amounts to C$257M, plus annual interests of 8.25%, which amounts to C$4M from now to May 7, 2015. In summary, Athabasca will pay back its debt for C$831M.
In addition, paying back all accounts payable plus long-term debt, losing all of its provisions and paying its deferred income tax will cost the company C$1,176M in total.
On the other hand, the company has C$1,363M in assets. So basically, you get C$187M in net assets, C$1,962M in property, plant and equipment and C$1,088M in exploration and evaluation assets.
This amounts to C$3,237M, or C$8.05 per share with 402 million shares issued. Yes, the notes aren’t available all at once, and yes their acreage might be uneconomic in this environment, but it will surely be worth something in the future.
Let’s try another hellish scenario : in a huge fire sale, the PP&E are sold for a third of their value and exploration and evaluation assets aren’t worth a penny. This still amounts to C$2.09 per share. Almost on par with today’s price.
Disclosure: I am long ATH.