Cardboard Posted April 4, 2016 Share Posted April 4, 2016 Anderson Energy Inc. has been in restructuring for about 2 years. Friday, it completed one of the final steps to emerge has a low cost oil & gas Cardium producer without any debt and $10.6 million of net cash on its balance sheet. You can use positive working capital of $6.7 million to be more conservative. So on Friday, the redemption of these debentures for shares has been approved by debentureholders. Each $1,000 of debentures will receive 183,207 shares and closing is expected by April 8. Post conversion, the company will have 17.772 billion shares. At the AGM in May, they will propose a 1 for 1,000 share consolidation. At the current price for the debentures of $31.50, you are effectively paying $33.50 including accrued interest or $0.00183 per share which means an EV of $22 to $26 million depending on how you look at it. They are forecasting to produce 1,550 boe/d in 2016 with 42% liquids. They produced 2,037 boe/d in Q4. Production will decline due to some shallow gas wells shut-ins and their decline rate with them planning no drilling in 2016. That gives them an ultra low valuation of $14,000 to $17,000 per boe/d using 2016 forecast. You can look at reserves, it is very cheap too. This is a Greenblatt type opportunity. Trading in the shares is effectively not possible with the bid being $0 and ask $0.05: can't enter $0.015 for example on most trading platforms. So the only trading vehicle for the company currently are these debentures. Normally, it is an income vehicle so they are misunderstood by a large majority of stock retail investors and the debentureholders who have bought this as income are now facing being shareholders in a junior oil & gas company. Moreover, once the conversion is done on April 8 or before, trading in the shares will be impossible (see above) until consolidation in mid-May where they would trade at $1.83 per the current price of the debentures. So this mechanic may help explain why the debentures trade at this level while this company post conversion of these debentures will be a sweet take-over target: most if not all acquirers being leveraged, this allows them to acquire production on the cheap and to de-lever their balance sheet right away. There are many producers next door in the Cardium who do have the means to swallow this. A double is not a crazy expectation: most deals for this type of property were done at higher metrics and from people that were distressed sellers. And even if no buyer shows up, they have a pristine balance sheet which is unheard of in the oil patch and pretty solid netbacks relative to other Cardium and Canadian producers. So not a bad place to safely play an energy recovery. Cardboard Link to comment Share on other sites More sharing options...
sculpin Posted April 4, 2016 Share Posted April 4, 2016 Good write-up. The shares have been trading somewhat in the US at under the $0.005 offer on the TSX. Symbol is below... AXLFF - Q 10.0 0.0012 · 0.009 30.0 0.0028 Link to comment Share on other sites More sharing options...
Cardboard Posted April 4, 2016 Author Share Posted April 4, 2016 I actually had not thought about the pinks route. Very limited trading still. There is also some trading on the TSX. Some people bought 108,500 shares at $0.005 today. That is about 2.73 times more expensive than buying the debentures! Cardboard Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted April 5, 2016 Share Posted April 5, 2016 There also seems to be a few debenture holders seemingly wanting to sell perhaps just because there will effectively no liquidity (except pink sheets) until the share consolidation is complete in mid to late May. I think this adds to the opportunity this week. I bought more today. Link to comment Share on other sites More sharing options...
Cardboard Posted April 5, 2016 Author Share Posted April 5, 2016 A few points that I failed to mention: 1) $1.562 million in interest on the "A" convertibles was accrued on the balance sheet at December 31. This will reverse since they issued shares instead to repay that interest to the "A" holders in January. That means that working capital at December 31 was actually $8.3 million or quite close to the net cash balance. On the other hand, they made a land acquisition in early 2016 in the Duvernay carbonates. Considering that their total capex budget for 2016 for maintenance and land acquisition was $3 million, we can assume that this 12 sections parcel could have used up that $1.6 million at most. However, they were also generating $1.8 M of funds from operations in Q4 excluding the interest on the debentures. So it is quite possible that the cash balance is still intact at the end of Q1. 2) They generated netbacks of $21.18/boe in the Cardium in Q4 while producing 48% in liquids. This is exceptional and puts them in the top of the class of Cardium producers: Whitecap, Penn West, you name it. What is even more impressive than the netback number is that they did it while producing 52% in natural gas from these wells. To get to these kinds of netback numbers, other producers are producing 60 to 70% liquids. Cardboard Link to comment Share on other sites More sharing options...
hillfronter83 Posted April 5, 2016 Share Posted April 5, 2016 Cardboard, Thanks for sharing the idea. I looked on IB and the bond is not available. Which broker do you use for trading it? Link to comment Share on other sites More sharing options...
Cardboard Posted April 5, 2016 Author Share Posted April 5, 2016 It is in Canada on the TSX. Symbol is AXL.DB.B. It should be available on Interactive Brokers. Sometimes, I can't find quotes depending on where the dots are or using dash instead. If you do a search on Anderson Energy it should come up. Cardboard Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted April 6, 2016 Share Posted April 6, 2016 This does feel like one of those fat pitch opportunities with a relatively low chance of permanent loss and not being able to trade it for the next six weeks might be the best thing if oil prices move up in the meantime. Anyway, I added more this morning and it was very easy to do so! Link to comment Share on other sites More sharing options...
rykelsap Posted April 6, 2016 Share Posted April 6, 2016 A good summary of a complex situation Cardboard, I have owned some of the 7.25% series B debenture since they exchanged the 7.50% series A debenture earlier this year. I think you are overly optimistic on your projection for working capital. Given realized prices in January and February plus the acquisition of land, I think current working capital will be closer to $5 million. The effect of the minimum bid size of $0.005/share has created an interesting dynamic here. The order board for the common shares has made me laugh for the last couple weeks with more than 500 million shares offered at $0.005/share and no bid. I don't know who is buying shares at $0.005/share but most retail investors in Canada don't seem to look at the overall capital structure before buying a stock so I guess I shouldn't be surprised. Link to comment Share on other sites More sharing options...
wachtwoord Posted April 19, 2016 Share Posted April 19, 2016 It is in Canada on the TSX. Symbol is AXL.DB.B. It should be available on Interactive Brokers. Sometimes, I can't find quotes depending on where the dots are or using dash instead. If you do a search on Anderson Energy it should come up. Cardboard I couldn't find it on IB and then I checked my permissions in account management and it seems that Canadian bonds are not supported (you cannot request to trade it). https://www.interactivebrokers.ca/en/?f=%2Fen%2Fgeneral%2Feducation%2Ffaqs%2FcanadaFAQs.php%3Fib_entity%3Dca : What Canadian securities are NOT available for trading? IB does not offer Canadian Bonds and Mutual Funds. Too bad. Thanks for sharing anyway and good luck! Link to comment Share on other sites More sharing options...
Cardboard Posted April 20, 2016 Author Share Posted April 20, 2016 Closing was supposed to be on April 8: http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aAXL-2363087&symbol=AXL®ion=C Now, is this incompetence or something else? They had already done an exchange for shares on the "A" convertible in January so that looks weird. In any case, the value is still there and growing by the day with oil going up. At current price and accounting for the accrued interest that you will be paying, this trades at $14,500 per boe/day. This is an insanely low amount for a company that has no debt, a net cash balance and some of the best netbacks in the Cardium. There is no issue with their reserve life either. A good comparable is RMP which has very similar netbacks and liquids %. It trades at $35,000 per boe/d and I consider that company quite cheap. And it does have some debt although, very manageable. Companies such as CPG and WCP trade at $90,000 per boe/d. Even a troubled fellow PWT trades at $41,000 per boe/d. Cardboard Link to comment Share on other sites More sharing options...
netnet Posted April 21, 2016 Share Posted April 21, 2016 Is it still trading? Schwab has it down as a reg144, institutional now. Link to comment Share on other sites More sharing options...
Cardboard Posted April 21, 2016 Author Share Posted April 21, 2016 Yes it is and I can't buy it all on my own! There is a seller at $32.50 that simply won't go away. Cardboard Link to comment Share on other sites More sharing options...
Cardboard Posted May 11, 2016 Author Share Posted May 11, 2016 Finally over now: http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aAXL-2371614&symbol=AXL®ion=C With the exchange completed, an acquirer could come in tomorrow and take-over 1,550 boe/d of production in the Cardium with very respectable netbacks for a very low price and de-lever their own balance sheet in the process since Anderson is debt free (actually has net cash) especially if using mostly shares. Cardboard Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted May 11, 2016 Share Posted May 11, 2016 The meeting date is set for June 14 so the consolidation should be complete by the week after. It will be interesting where it starts trading. Link to comment Share on other sites More sharing options...
netnet Posted May 11, 2016 Share Posted May 11, 2016 In these sorts of thing nothing surprises me, i.e. it could trade violently up or trade down, but i wouldn't be surprised if it didn't trade down with some debt holders unloading, but we will see, that's what makes markets. (My guess would be a price between the conversion price and the last stock price, but there is no way to know what is going to happen.) Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted May 11, 2016 Share Posted May 11, 2016 I hope it trades down from the implied price based on the most recent debs trade but I think I'm sized appropriately if it doesn't. I can always buy more lower. There are just not that many light oil plays with no debt, a big runway and activist type hedge fund shareholders. Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted May 26, 2016 Share Posted May 26, 2016 With WTI getting above US$50 (barely and for not very long I know), it's hard not to get excited about AXL. Even though the stock is impossible to buy right now until the stock consolidation is complete in mid June, US$50 WTI was the trigger for management to start drilling again. With no debt, $2m D&C costs per well and "The average IP 30 for the 19 Cardium horizontal well completions in the Willesden Green area since January 2012 is 469 BOED (68% oil, condensate & NGL)." It's not hard to see how quickly production could grow off of their 1500-1600 boe/d guidance for this year. Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted June 13, 2016 Share Posted June 13, 2016 The AGM and vote on consolidation of the shares takes place tomorrow morning. It should take 3 business days for the consolidation to be effective but I'm not sure if tomorrow counts so expect it trade consolidated by Friday or Monday. It might also take an extra day or two for the change to be effective in individual shareholder accounts so liquidity may not be great from the jump. Link to comment Share on other sites More sharing options...
Cardboard Posted June 17, 2016 Author Share Posted June 17, 2016 http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aAXL-2383532&symbol=AXL®ion=C Can't wait for this to finally trade. With the delayed conversion due to "administrative issues" it seems to have taken forever! Cardboard Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted June 18, 2016 Share Posted June 18, 2016 Do people mind posting when they see the new shares in their accounts? I think it might be interesting to know when people are in a position to sell. Thanks! Link to comment Share on other sites More sharing options...
sculpin Posted June 18, 2016 Share Posted June 18, 2016 Should trade for between $25K and $50K flowing boed + $5mm cash based on their Cardium production. On an expected 1,600 boed in 2016 puts the value from $45mm to $85mm. NPV 10 is $67.5MM as well at Dec 31 2015. This would mean post consolidated share price should be $2.50 to $4.75 with these valuations and $3.80 on the NAV. Debenture holders should get back from 45% to 85% of their principal back under these flowing boed valuation scenarios. Best thing that may happen would be management being forced to sell to someone like TVE, WCP or YGR if a significant premium could be had. That way they don't go off destroying more shareholder value in their new ""Duvernay" opportunity or..... With net cash & a committed bank line of $18mm Anderson could boost production significantly before a sale. Ultra low costs of drilling and completion would allow them to bring on 7 or 8 wells in their best area with easy/fast pipeline connection. Based on ""Average IP30 for 19 Cardium wells completed in the Willesden Green area since January 2012 has been 469 boed (68% liquids), a seven well program by year end 2016 could see production exceed 3,000 boed taking into account declines on current production. Based on modest $40K/boed valuation (due to flush production nature of recent wells) Anderson could be worth over $105 million (EV $120mm less $15mm bank debt) to shareholders or about $6 share. Guess for initial trading could be anywhere from $1.50 to $2.50. Thoughts? Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted June 19, 2016 Share Posted June 19, 2016 It's hard to disagree with the numbers you are putting out there which means if it trades below $2.50 it's probably a bargain. The "last trade" based on the debentures was around $1.92 and oil has gone up a lot since then. One of the interesting things about this situation is how many large potentially activist shareholders there are versus any other Canadian energy name that I can remember. Based on the circular: Bruce Mitchell 16% Anson Funds 11% and based on a filing before the conversion of the B debentures, K2 at around 9%. Link to comment Share on other sites More sharing options...
wachtwoord Posted June 20, 2016 Share Posted June 20, 2016 This is the correct security right? http://web.tmxmoney.com/quote.php?qm_symbol=axl I'm asking because I don't see any asks or offers yet and the link in the below quoted post by cardboard suggests the ticket is AND. (but that seems to be Andean Resources Limited) http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aAXL-2383532&symbol=AXL®ion=C Can't wait for this to finally trade. With the delayed conversion due to "administrative issues" it seems to have taken forever! Cardboard Link to comment Share on other sites More sharing options...
Cardboard Posted June 20, 2016 Author Share Posted June 20, 2016 The ticker has been changed as of this morning from AXL to AND and it is now trading with a bid/ask of $2.70/$3.45 and last trade at $3.36. Last price from the debentures including accrued interest was around $1.99/share equivalent. So a nice pop this morning and it remains quite undervalued. Cardboard Link to comment Share on other sites More sharing options...
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