Canadian oil patch for sale!

[alertmeipp]

I've sold out all the common on LTS, some too early.  Just holding on some leaps now which is hard to sell at any premium after the rally. :)

 

Majority of proceeds go back to other CDN producers like PWT and black hole like ALS, none were as good as LTS in term of last couple months' performance. The speed of the sale execution and metrics is all cool. Oil price helps too, they get to keep the fund flow even after all those sales.

 

My recent buy is BXE.TO, cheap multiple (~4x) with 20% growth with solid balance sheet. Have a look.

 

 

[bizaro86]

Lots of room left, Lightstream's equity is still a 40-50 cent dollar at current prices.

 

I agree however i did sell just under a 3rd of LTS position today. I was running some margin so it brought the house back in order. Still very concentrated in oil and gas with 17 % in each of LTS, SD, and ECA and 6% in SGL. Certainly not for everyone but so far it has worked and will begin to trim going forward. I still think NG can go higher and would be more than ok if oil stayed at 100.

 

Just curious, are you calculating fair value? I sold 60 percent of my leaps position recently, but if a reasonable fair value is actually 16 I should buy them back...

[oldye]

back of the envelope:

Enterprise Value after recent divestiture ~ 3.9 Billion less 239 million in sold assets since q1 - 3.66 Billion

Less value of 80,000 acres in the Duvernay - (600-800 million)

2.8-3.0 Billion

 

Proforma Fund flow from ops - 635-660 million implies a current Funds flow multiple somewhere around 4.4x

 

You can definitely argue that 4.4x cashflow is fair for a commodity company and that is your choice.

 

But right now I think there is a good chance we see higher oil prices and Lts will continue to reduce debt and unlock value.  Looks like they put another block of land on sale through RBC, submission deadline is June 19th and we should expect to see another 100+ million reduction in debt if a deal is made.

 

The natural gas injection results look promising and I like having the upside of technological advances that will unlock even more value from their land. 

 

 

 

 

 

[bizaro86]

back of the envelope:

Enterprise Value after recent divestiture ~ 3.9 Billion less 239 million in sold assets since q1 - 3.66 Billion

Less value of 80,000 acres in the Duvernay - (600-800 million)

2.8-3.0 Billion

 

Proforma Fund flow from ops - 635-660 million implies a current Funds flow multiple somewhere around 4.4x

 

You can definitely argue that 4.4x cashflow is fair for a commodity company and that is your choice.

 

But right now I think there is a good chance we see higher oil prices and Lts will continue to reduce debt and unlock value.  Looks like they put another block of land on sale through RBC, submission deadline is June 19th and we should expect to see another 100+ million reduction in debt if a deal is made.

 

The natural gas injection results look promising and I like having the upside of technological advances that will unlock even more value from their land. 

 

 

Thanks, that's helpful. I didn't do that much work on this to be honest, saw cheap LEAPs, took the Duvernay as a free option and said this stock is cheap even without that value, which it definitely was when the stock price started with a 6...

 

It was probably a cognitive error for me to sell the LEAPs just because they're a three bagger and the stock isn't as cheap as it was. I'll probably hold the rest of them until expiry.

[oldye]

I think it's interesting how so many of us took similar positions, I sold out of my FFH (after 8 years) and went all in on oil and gas.

 

I own the lts common, sd in the money leaps and touchstone exploration. Don't like talking about touchstone on here because it's so illiquid.  But I hope to get back into FFH once these companies realize their value. 

[bizaro86]

I think it's interesting how so many of us took similar positions, I sold out of my FFH (after 8 years) and went all in on oil and gas.

 

I own the lts common, sd in the money leaps and touchstone exploration. Don't like talking about touchstone on here because it's so illiquid.  But I hope to get back into FFH once these companies realize their value.

 

I'm also long touchstone (via Petrobank). Looks like liquidity is ~$100k per day, which is not bad for a company with a $77 MM market cap imo.

[oldye]

Like I said, kind of crazy how we all came to the same conclusions...

 

100k volume shows that Touchstone is in strong hands I guess..at least at these price levels.  100k is nothing for some of the members of this board, let alone everyone that reads it.  Ideally Lts/SD gets bought out before Mr. Market has wakes up...

[bizaro86]

Like I said, kind of crazy how we all came to the same conclusions...

 

100k volume shows that Touchstone is in strong hands I guess..at least at these price levels.  100k is nothing for some of the members of this board, let alone everyone that reads it.  Ideally Lts/SD gets bought out before Mr. Market has wakes up...

 

Fair enough. I have a full Touchstone position already, may top up a bit here and there. I agree that it wouldn't take much for this move, one fund manager or large private investor who realizes that its probably worth at least 50% more than the current price.

 

As to so many members being in the same names, I think that's due to the level of the market, where value is harder to find. In 2009 everything was cheap, in 2014 there are less choices for value investors, so as a group we're more likely to crowd into the same names.

[Myth465]

I have just bought Manitok and Iona. Both are quite cheap.

[no_free_lunch]

I am not an expert but I really like Manitok.  It is priced similar to some of the larger (and still cheap) companies in the oil patch but without all of the debt.  Plus they have been growing like mad lately.  Company repurchased 5% of shares in the most recent quarter (partially offset by issuing about .7% shares) with another 10% repurchase authorized.  They have maintained administratives expenses at prior levels while production has doubled, always good to see.  If they hit their production targets and the oil price stays flat it's probably a double.  Just my somewhat rough opinion.

[CorpRaider]

I bought a few talisman calls.  Just looked at a few estimates of NAV, read up on restructuring efforts and noted I can get in lower than uncle Carl. 

[gordoffh]

even though i have plenty of oil and gas i also initiated a position in Manitok today. appreciate the heads up

[no_free_lunch]

The CEO of Manitok bought 10k shares yesterday on the open market.  He has about 850k shares via options, but previously only 75k via open market purchase so it's worth noting.  Not exactly a screaming buy signal but this couple with the companies internal share repurchases are encouraging.

 

I also found this on the CEO (from 2011):

 

Massimo Geremia, president and CEO of junior firm Manitok Energy Inc., says he’d be OK with gas prices staying flat for awhile longer so his company can keep buying up gas-rich properties in Alberta’s foothills selling at a discount as the majors flee (for various reasons).

 

Though the company is focusing on liquids-rich and oil opportunities, Geremia is happy with the land Manitok has bought for its gas potential, down the road.

 

“There’s a lot of gas in the foothills,” Geremia said. “In the last two years, we acquired over 96,000 acres (in the foothills), all through Crown land sale,” he said, including six sections of land around a $5-million drill targeting 50 billion cubic feet of gas for $37,000.

 

“Right now dry gas is a four-letter word. But we’ve got a lot of deeper gas opportunities. We’ve been aquiring land with those opportunities because you can get it really cheap,” Geremia said.

 

“Some day (gas prices) will correct. I’m hoping it takes another two years because it gives me more time to buy more.”

 

“It’s not going to go back to $8-$10 (per mmBtu) but I think $7-$8 is probably a reasonable number.

 

http://blogs.calgaryherald.com/2011/06/16/dry-gas-a-four-letter-word/

 

I don't want to read too much into this but at least he appears to be contrarian investor.

[no_free_lunch]

Manitok has a presentation on their website, looks like it must have been put up in the past week or so.

 

A number of interesting items in it, one of the more important to me is that their buybacks continue.  From Nov 8, 2013 to June 17, 2014 they have repurchased 8.5M shares, or about 12% of the company.  This is partially offset by 1.7M options exercised.  However, I don't really view the options exercising as material since they were already in the diluted share count.

 

On page 6 of the presentation they break out their past and future production forecasts.  There will be a dip in Q2 to below 5,000 BOE as a result of selling 800 BOE (I need to get a handle on what the disposition was about).  They are still forecasting in excess of 7000 BOE in Q4.  We will see.

 

They are forecasting to end the year with net debt of $60M versus FFO of $70M which if you look at most peers is extremely low.  Many peers have debt 2-3x FFO whereas they are less than 1.  This matches their historical record as well since they have consistently kept debt well below FFO.  Albeit, in prior years they did issue shares to fund operations.  However, this year they have been buying back stock.  I find it incredible that they are growing (well forecasting growth) while buying back stock and at the end of the day the debt multiple will still be one of the lowest relative to peers.

 

They forecast $70M FFO, versus a market cap of $170M, so are trading at 2.5x FFO.  It just seems incredibly cheap when larger peers trade at 5-10x FFO.  It's possible I am just missing something here but that multiple seems far too low.

 

Presentation is here:  http://www.manitokenergy.com/files/file/manitok-corporate-presentation-2014-06-20-v006-final.pdf

 

Obviously I am a huge bull on this one.  At some point, certainly if they can get to the 7,000 BOE they should graduate into the larger & higher valuation camp.  If that happens, with the low debt and ability to continue to grow it could be a multi-bagger.  I really need some sense knocked into me on this, seems too good to be true.  Why is it so cheap?

 

 

[gordoffh]

Manitok mentioned on BNN today and the cheap valuation was noted and the fact it had not

made a move like others in the sector. Analyst liked the stock and was a holder.

The show was market call and was at the beginning of the program. I had an additional buy in today but did not get the fill.

[Myth465]

Monitok is now my largest holding.

They have a gas well that they own 70% of which is throwing off 2000 BOE.

 

I like the CEO, like the buybacks, like the strategy.

I think the Foothills is quite complex Geology. They have found some amazing acre with the Stolberg play.

It has allowed them to grow quite quickly but its running out.

 

I think they are very shrewd. Sold shares at $3 or so, buy back 10% of float at 2 or so.

Also buy something easy, simple, with lots of run room. Buy something that is predictable and repeatable.

 

I think they may have found that with Entrice. Once its up and running the street will revalue them at 4-5x CF, vs. the 2.5x CF.

After that happens they will continue to expand the acreage positions and asset base.

 

In the meantime they can do what they really enjoy - Play in the foothills area.

They can take some of the capex, use it to explore, and will likely find many more Stolbergs.

Dry wells and what not will not effect their valuation because they will have the predictability of the Long Run and Entrice farm in / freehold lease.

 

I like it and will go along for the ride.

Keep in mind that the CEO significantly increased his ownership in the company.

He just used the companies cash to shrink the share count and asset base by 10%.

 

I agree with Trapeze that this is worth $6 or more by end of next year.

[gordoffh]

after sleeping on it I will move some of my LTS ( which has had a nice run) to add to initial position in Manitok - certainly appears undervalued

 

[Cardboard]

It does look cheap.

 

However, one concern for me is the reserve life index at 6.7 years which is rather low if I compare to other Canadian E&P with most between 10 and 15 years. That is why the discount to NAV is attractive at 36% but, no where near as mouth watering as the 2.5 cash flow multiple. The EV/DACF is also very attractive, and I would say more important than the P/CFPS multiple. Many Canadian E&P's have gotten in trouble when their debt to cash flow approached 2 times. Their target not to exceed 1.25 times is right on.

 

If you are looking for comparisons, here are the multiples that have been paid in recent transactions for oily Canadian E&P's:

 

$85,000 per boe/day

$20 per 2P boe

2P reserve life index of 13 years

 

On the boe/day metric, MEI would be over a double. Although, on the reserve life index metric, it would only go up 18% from here.

 

Cardboard

[no_free_lunch]

Thanks Cardboard.  I figured there was some metric I was overlooking.  Perhaps the one saving grace on reserves is they hold some 300k acres undeveloped land.  When I was looking at other firms that is a substantial amount, there are firms 10-20x their market cap with only 2-3x the land.

[no_free_lunch]

When Massimo Geremia and Tim de Freitas founded Manitok Energy Ltd. in 2005, they knew exactly where to look to find the talent to crack the Alberta Foothills – Talisman Energy Inc.

 

Up until 2008, Talisman was one of the most active players among the major companies in this conventional oil play located in the shadow of the Rocky Mountains in southwestern Alberta. But then the spending stopped and Talisman moved on to other core areas. Geremia, who is Manitok’s president and CEO, and de Freitas saw an opportunity and went after it. “When Tim and I put this together, we weren’t thinking how we were going to get other people. It was how we were going to get these specific people from Talisman.”

 

The recruitment strategy has worked. Manitok’s 18-person technical team includes 10 Talisman alumni. The company’s COO and vice-president of exploration, de Freitas, is one of them. All of them have experience working in the Foothills. Geremia says that’s a tremendous advantage for a small junior that has an interest in over 280,000 acres of land in the play. “They understand the opportunity in the Foothills better than anybody and they are betting their futures and their careers on it,” Geremia says.

 

http://www.albertaoilmagazine.com/2013/04/manitok-energy-talisman-foothills/

[gordoffh]

looks like story getting out on manitok -  up 3.5 % so far today -

[gordoffh]

for all you holders of LTS an interesting read

 

http://buysidenotes.com/2014/06/26/lightstream-lts-a-multi-bagger-in-the-making/

 

[gordoffh]

nice write up of Manitok  AGM on stockhouse  - added today

 

http://www.stockhouse.com/companies/bullboard/v.mei/manitok-energy-inc?postid=22699690

[no_free_lunch]

Thanks gordoffh.

 

I read the article and thought it was fantastic.  I like the CEO's style, he strikes me as very open and long-term focused.  Just a few quotes:

 

Q: “You said your COO left, did he leave voluntarily, or was he?”

 

A: “No. We let him go.”

 

I like above, how he just bluntly states the facts, no managerial BS, just "we let him go".

 

“Under what circumstances would Manitok consider paying a dividend?”

 

A: “We kind of are right now; it’s a capital dividend, we’re buying back our shares, right.

 

“… Rather than trying to buy an asset that’s on the street for 5-6 x cash flow, we are buying our own assets, which we view as much better than most other people’s, at 2.5 or 2 x cash flow …”

 

Q: “Do you have any plans of potentially moving to the TSX?”

 

A: “Yeah, we instituted KPMG as our auditors last year, that was the first step in that move. If we were to do an acquisition of some type this year we would wrap that around a TSX listing, and if we don’t, there is probably a good chance by this time next year we will be on the TSX.”

 

I probably have confirmation bias going right now but the more I research this the more I like it.  If there is a dip I am buying more.

[gordoffh]

I probably have confirmation bias going right now but the more I research this the more I like it.  If there is a dip I am buying more.

 

right there with you on this one  :)