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.

Portfolio Update: Sympathizing With Investors Enduring Pain

  • Despite mostly upbeat Q2 results, my stock picks aren’t moving higher.
  • Sentiment is still negative in the energy market, capping energy stocks gain.
  • Painted Pony and Point Loma are underperforming.
  • Prairie Provident and Granite Oil are my two favorite buys right now.

Click here to read the entire article on Seeking Alpha.

Point Loma Resources: Insider Ownership

Here are the current holders of Point Loma Resources (PLX).

Evenergy Company Ltd.InvestorJianjun Cui, Director of Dayou Energy Ltd., the parent company of Evenergy Company Ltd., is on the Board of Directors8,375,000
Terry MeekDirector, CEO1,922,691
Doug DafoeDirectorCEO of Ember Resources Inc.115,690
Steve DabnerDirector, ChairmanVP Exploration of Madalena Energy Inc.60,000
Jay ReidDirector0
Donald BrownDirector1,171,244
Kevin BakerDirectorDirector at Calfrac Well Services Ltd.6,052,011
Al KroontjeInvestorOwner of Kasten Resources Inc.4,410,291
Richard YurkoInvestor3,981,535

Source: Cadotte Capital Partners

Insiders own 22% of outstanding shares.

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

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, Point Loma Resources and Raging River Exploration. 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, Nemaska Lithium and Natan Resources, now Enforcer Gold. 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. 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 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 on Friday after selling the stock two weeks ago. Support was limited below the 200-day moving average.

TWM StockCharts.com March 13

Source: StockCharts.com

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 and in Gear Energy by selling part of my position in MEG Energy. I am preparing my portfolio for lower oil prices.
  • I opened a position in Tidewater Midstream & Infrastructure.
  • I bought back shares in TransGlobe Energy. 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.

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.