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Canamax Energy (V.CAC) probes for value in the small-cap oil and gas space

Stockhouse Editorial
1 Comment| June 10, 2014


Canamax Energy Ltd. (TSX: V.CAC, Stock Forum) is a Calgary-based company focused on acquiring and consolidating microcap oil and gas companies and exploiting low risk assets with strong growth potential in the Western Canadian Sedimentary Basin. The company has already acquired a strong portfolio of producing properties mainly in Alberta.

Having recently raised $13 million, the company says it is in an excellent financial position to continue with disciplined growth via its acquisition and exploitation strategy.

The company changed its name to Canamax from Petroforte International Ltd. in February, 2014.

The following is an interview with President and CEO Brad Gabel.

Why should people invest in Canamax Energy?

Canamax has a proven team that has been able to grow companies from startup to 5,000 barrels per day. Our management team has created liquidity for shareholders of previous companies with our  strong M&A backgrounds. We have a balance sheet with no debt and a good initial suite of assets for future development. In addition, we continue to look for acquisition opportunities which can add production and reserves at attractive financial metrics.

What sets you apart from the competition?

There are a lot of small cap companies in the energy sector, however, not many are financially capable or have the experience to pursue an acquisition-based strategy.  Acquisitions of financially distressed companies involve a significant amount of negotiation with creditors, due diligence and legal documentation that is extremely time consuming and requires a highly experienced team. 

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Canamax’s team has the M&A skill sets to get these deals done, as we have proven over the past eight months. Also, for the large oil and gas companies, the microcaps are too small to acquire so we don’t see a lot of competition in this space. For a lot of target acquisitions, we are the only bidder at the table.

Who are Canamax’s major shareholders?

Management and insiders own about 15%. In the last financing, we saw some large institutional funds starting to take a position in the company.

Who are the key players on your management team?

As President and CEO, I bring a lot of experience in acquisition and divesture transactions.
I previously ran a public company called Pure Energy Services Ltd., which was traded on the TSX and which we sold off to a large big U.S. firm called FMC Technologies Inc. (NYSE: FTI, Stock Forum) back in October 2012 for approximately $280million.

Our Vice-president, Operations and Chief Operating Officer, Jeremy Krukowski, is a professional engineer with over 20 years of experience in the oil patch. Jeremy runs the business and he also reviews all the different acquisition opportunities that are brought to the company.

Our Executive Chairman Kevin Adair is a professional engineer. He is currently President and CEO of Petrus Resources Ltd and previously founded Spry Energy Ltd. He has also held senior positions with oil and gas companies, including Colombia-focused Petrominerales Ltd.

Can you give us a wrap on the latest developments at Canamax?

In mid-May and the end of April we closed two tranches of a private placement financing for gross proceeds of $13 million. I would say that was a win for us because Canamax had previously announced a target of $8 million. We were also able to close on the $6 million acquisition of Ki Energy Exploration Inc., a company that was producing about 330 barrels of oil equivalent per day and delivering annual field cash flow of about $2 million.

Subsequent to that, we released our capital expenditure budget for the remainder of 2014 (which totals $14 million) which will be funded from proceeds from our recent financing.   

We are both a consolidator and an exploiter of high-quality, low risk assets and I think it’s pretty clear from the last eight months that we are successfully executing on our business plan. With the success of our recent financing we can finance our 2014 Capital Budget without utilizing debt facilities.

How do the recent financings leave you cash wise?

It leaves us with $13 million in the till and zero debt. How will that money be deployed?

We announced a $14 million capital budget for the remainder of this year that will be funded from the proceeds of the private placement. Of that amount, $10.7 million will be spent on the Flood area [Montney oil play in northwestern Alberta] with $7.2 million being spent to drill, complete and equip vertical wells, another $2.6 million to complete well tie-ins, and on water disposal and processing facilities.

Another $2.5 million will be spent at the Wapiti property [Cardium oil play also in western Alberta] to drill, complete and equip one horizontal well.

With our operating cash flow and financing proceeds we continue to maintain a strong balance sheet. That puts us in a good spot to continue to acquire and do tuck in acquisitions as we go along. Year-end financial results will come out at the end of June.

What opportunities do you see out there at the moment?

There are a lot of microcap companies that can produce up to 1,000 barrels of oil equivalent per day. Many have been in a financially distressed situation due to prevailing market conditions and a lack of access to capital. Many of these companies have also been in mandatory debt paydown with their banks. So, they have no money to put into the ground.
In addition, because the management teams have often been cannibalized, there is not much left of the front office.

Those that remain are sometimes just holding down the fort.

Those distressed microcap companies are not being revived with the recent market tailwind that is fueled in part by stronger oil and natural gas prices. They are still in a situation where they need to find a home. Because of their size, such companies would not be considered material by the larger consolidators. But for us, they are material.

That is really the opportunity. They come with a fair amount of heavy lifting that would deter larger consolidators. We believe that our experience gives us the ability to act on some of these things, which are highly accretive [to a company like Canamax] and end up being purchased at a valuation far below consistent market metrics in mid-cap markets.

How many companies are available to be acquired?

There are about 65 microcap companies that we know are in financial distress and in special credit with a few difference financial institutions. Some are not yet in a mandatory paydown situation. But they are definitely in a difficult financial state.

Shareholders are looking towards liquidity, and in any form. So anytime there is something on the table that looks reasonable, they will look at transacting. It is, however, important to point out that not all of these companies will be a good fit for Canamax.  Our focus is to find opportunities with good land positions, high working interests and operatorship.

What made you decide to join Canamax Energy?

I sat on the board of the company and recognized that there was a void on the M&A and capital markets side of its operations. That is why I joined. Jeremy Krukowski had the operational side very well covered.

You recently completed three asset acquisitions and one farm in deal. Can you outline how they fit in with your overall strategy?

We have really been trying to acquire a good suite of oil-weighted assets that are focused on a few different core areas. We have been able to grab a Montney oil play and a couple of Cardium oil plays [in Alberta]. Those are the areas where the company is continuing to focus its acquisition strategy.

Are there more distressed oil and gas assets that you might think of acquiring in the near future?

We are continuing to evaluate opportunities. There is a good pipeline of additional candidates that we are keeping an eye on as we move forward on the acquisition front.

What is your monthly cash flow?

We haven’t published that. We are too small to give cash flow guidance at this point and some of our properties have production that is just coming on stream. But we are in the process of working with some analysts and we will let them do their own calculations.

What we have given guidance on is a targeted 2014 exit range of between 1,400 and 1,500 barrels of oil equivalent per day. We have a 52% weighting in oils and natural gas liquids.

Full disclosure: Canamax Energy is a Stockhouse client.


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