Recently for paid Ticker Trax subscribers I sent out our monthly cash rich list and #6 on that list of the biggest discounts to cash value was Petrobank Energy and Resources Ltd.
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This weekend I am reviewing why PBG may be an attractive speculation for 2014.
This research was sent to TTrax subscribers early December near 33 cents but it is just as relevant now although 10% higher.
Petrobank (PBG.T 36 cents): www.petrobank.com
Net Cash to the end of 2013 is $50 Million or 54 cents per share
Petrobank owns heavy oil technology called THAI and heavy oil assets in Alberta & Sask.
Petrobank was a spin-out from a highly successful oil company and they have spent the past several years trying to prove the economics of a new heavy oil extraction technology called THAI.
So far it has proven to be a money pit but they admitted in November they were shifting directions and would start the search for merger or acquisition targets to rebuild shareholder value.
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If THAI operations (which they have invested tens of millions of dollars on) do not improve by Q2/14 they will take whatever action is necessary to eliminate the negative cashflow – including closure of the project. For existing shareholders they are very upset about this because so much money has been spent trying to prove up the economics of THAI within this heavy oil field.
In addition to the large (significantly discounted) cash position, the company has $77 million in capitalized assets on the books plus undeveloped heavy oil reserves.
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I wanted to see Petrobank admit that their THAI project was a failure and they would stop funnelling cash into it - and look at more conventional ways to restore shareholder value. It appears they are definitely willing to do that.
Trying to raise $50 million in this market is a huge challenge for any small company but we are able to get a large discount on that cash and pay nothing for the underlying assets.
Relevant Excerpts from their November 13th News
Petrobank recognizes that it has invested significantly in the Thai process, and it is disappointed with current production rates. It is taking pro-active steps to develop a sustainable operation, which will create value for the company's shareholders. It recognizes that the company's positive working capital is the company's most valuable asset at this time, and it is taking steps to conserve it for future projects and acquisition opportunities.
The company's corporate strategy includes the following five concepts:
1) Eliminate the negative cash flow at the company's Kerrobert project by mid-2014 through advancing Thai, evolving other combustion techniques and/or reducing operating costs;
2) Assess the viability of steam-assisted gravity drainage at the company's Kerrobert property;
3) Initiate the company's Dawson CSS cycle and assess this process as a precursor for Thai or other combustion operations, or as a stand-alone process;
4) Evaluate other in situ combustion processes and configurations;
5) Pursue corporate and/or asset acquisition opportunities.
Kerrobert Thai operations continue to generate negative field operating netbacks, and the company is currently developing plans to eliminate this negative netback by mid-2014. At this time, it is the company's intention to suspend Thai operations in the event the negative netback cannot be eliminated by the end of the first half of 2014.
Concurrent with the company's Thai operations, the company is also analyzing steam-based processes for the company's Kerrobert and Dawson assets. At Kerrobert, it is evaluating the company's resource base and assessing converting one or more production wells from the company's Thai project to pilot a SAGD production process.
At Dawson, with successful results from the company's CSS cycle(s), it will consider seeking regulatory approval to expand the CSS project. Other operators are implementing CSS projects on the same Blue-sky channel trend adjacent to the company's Dawson lands.
With a strong balance sheet that is expected to have over $50-million of working capital and no debt at year-end 2013, Petrobank is also reviewing several acquisition opportunities to maximize the value of the company's asset base, combustion experience and strong balance sheet.
It is focused on generating cash flow and future value creation opportunities for Petrobank's shareholders.
Petrobank can lend support to this current trading range because they have approval for a Normal Course Issuer Bid that allows them to repurchase up to 7.5 million shares in the open market until September 2014
Disclosure: Danny Deadlock owns 50,000 shares of Petrobank