PBN - Petrobakken

[Myth465]

Nuts that its trading at such a low valuation - http://www.stockhouse.com/News/CanadianReleasesDetail.aspx?n=8063510

 

I would buy with options and may buy after a few other plays work out.

 

PetroBakken Replaces 274% of Production and Increases Reserves by 18% in 2010

 

 

--  2010 average production of 41,688 barrels of oil equivalent per day

   ("boepd") increased 58% over 2009.

 

--  Proved plus probable ("2P") Company Interest(1) reserves increased by

   18% to 171.4 million barrels of oil equivalent ("MMboe") at December 31,

   2010, replacing production by 274% (2P Company Gross(2) reserves

   increased 18% to 169.2 MMboe).

 

--  Our new entry into the Cardium play in Alberta during 2010, through

   three corporate acquisitions and our initial drilling campaign, has

   yielded incremental 2P reserve additions of 43 MMboe. Our first 55

   operated wells drilled in 2010 resulted in reserve recognition for 149

   of our undeveloped Pembina Cardium locations (out of our current

   inventory of over 650). This drilling campaign has accelerated into

   2011.

 

--  From July 2010 to mid-February 2011, we drilled 80 (65.9 net)

   PetroBakken-executed Cardium wells, of which:

[goldfinger]

This company is managed for the long term and Wright is very shareholder oriented. They have lots and lots of acreage to play with and are masters are improving technologies to get the maximum out of their lands. All of this with a high net back and low relative cost of production. In an interview on BNN last year, Wright was kind of hinting at the fact that results would be excellent this year when the interviewer was asking why the stock price behaved badly last year.

Like swizzled I am excited about THAI. I used to be a CNQ shareholder (made me a bundle a few years ago) and some of the lessons of the horizon project are that these kinds of technologies could be invaluable in the future.

I am happy to hold Petrobank for the long run as I believe in peak oil. If you filter out all the verbiage in the press, reality is that world-wide oil exports reached their peak in 2005 and never exceeded it since then (http://www.theoildrum.com/node/5666)

[finetrader]

PBN may be managed for the long term but it's been at least 2 quarters in a row that they disappointed on production.

 

 

from the latest press release:

In the fourth quarter, PetroBakken production averaged 41,333 boepd, a decrease of 9% compared to the fourth quarter of 2009 due to dispositions, delayed operational activity and natural production declines from wells.

 

is the 9% decline in production from 2009 should be concerning?

[Swizzled]

 

"is the 9% decline in production from 2009 should be concerning?"

 

2010 was a bit of a strange year I think, so I'm not concerned at this point.

 

They first had to join the Petrobank Bakken assets with Tristar.  Then they made 3 acquisitions in the Cardium.  Then they had a very abnormal year weather wise that set them back 3 or 4 months.

 

They have 35 wells waiting to be completed which is a lot of production ready to go. 

 

I found the fact that they provided year end guidance of 46k to 49k interesting as this is a company that has historically never given guidance.  So I'm optimistic this means they are fully confident in that range.

[Myth465]

Swizzled thanks for the updated write up. This is probably one of the few oil and gas names which hasnt moved. I also like what they are doing, it reminds me of SD with the Mississippian.

 

Are you rotating ATPG gains into this after the revaluation? I want to move some here. I like you believe oil will only go up over the decade and would love to have a producer that has to do little more than poke holes in the ground and hedge.

 

I would like to see these guys be more aggressive and really drill. They are barely keeping up with declines and are growing production but its nothing to get excited over like Petro Minerales.

[Swizzled]

 

I wrote an article with a little more detail on Petrobakken valuation.

 

http://seekingalpha.com/article/255467-a-north-american-energy-play-with-a-4-dividend-yield-and-upside

 

To be clear, I like Petrobakken and think it is a good solid investment.  But the way to go here is Petrobank which is the parent of Petrobakken.

 

If Petrobakken turns out to be undervalued, Petrobank will be a good investment.    If Petrobank's parent assets ever get valued more realistically by the market this will be a great investment.  I Petrobank's THAI technology works out this will be a homerun.

[goldfinger]

Myth, In what ways is ATPG close to being fairly valued? It seems to me that a lot of the gains are about to be made...

[Myth465]

Myth, In what ways is ATPG close to being fairly valued? It seems to me that a lot of the gains are about to be made...

 

I agree, Swizzed mentioned that he did well with the moratorium plays and was headed for the exits as everyone was rushing in. It seems as though ATPG would be on that list. You would be crazy to sell now, but I was wondering if he would sell after the first big bump.

 

Im surprised we are still under $25 now and believe $30 should be the new $20 given all the progress we have made. After that you have to think about future prospects and NAV, but I think its at least worth $30 based on the improved outlook.

 

[Swizzled]

 

Earnings out for PBN

 

http://seekingalpha.com/article/257171-can-petrobakken-energy-double-reserves-on-property-it-already-owns

 

I wasn't real happy with Q4.  But you really need to consider how much more valuable this company is if EOR techniques perform as PBN and others expect (potential to double amount of oil recoverable)

[Guest Bronco]

Swizzled - in my opinion, you are what this board is all about.  Bring new ideas (at least for me on this one) and providing good upates and opinions.

 

We all don't have to like each other's ideas and stock picks and opinions but I appreciate your commentary on this and like I said you brought a new idea to my attention.

 

 

[tyska]

This may have been addressed in the conference call. But hopefully they are making up some of the production delays from last summer with a later spring breakup here. Looking forward to Total Energy Services release tomorrow, to see what there rig utilization has been and if they give any hint of what it may be in the first quarter.

[value-is-what-you-get]

 

  I Petrobank's THAI technology works out this will be a homerun.

 

If increasing a proved and probable energy reserve by 260% is the crack of the bat, then it may indeed be heading for the bleachers!

 

http://www.canadianbusiness.com/markets/headline_news/article.jsp?content=b6203333

 

[goldfinger]

If increasing a proved and probable energy reserve by 260% is the crack of the bat, then it may indeed be heading for the bleachers!

 

I am sorry but I cannot interpret that the same way as you do:

 

"Petrobank is pleased to announce we have achieved a significant milestone with the recognition by McDaniel of THAI® reserves at our Kerrobert project. This third party validation of the THAI® technology confirms that THAI® is able to economically extract oil in a reservoir that had previously been conventionally produced. This Waseca Channel reservoir has been drilled and in production for most of the past 30 years, yet over 90% of the petroleum initially-in-place ("PIIP") is estimated to be otherwise unrecoverable using conventional recovery methods. The THAI® technology has allowed us to create sizable incremental value from this previously non-producing resource. McDaniel has initially assigned 3.0 million barrels of proved reserves and 4.8 million barrels of 2P reserves as at December 31, 2010, a significant first step in recognizing the ultimate reserves potential of this field. McDaniel also assigned proved, probable and possible reserves of 8.5 million barrels, representing a 46% recovery factor (see "Possible Reserves"). As this is the first year for THAI® reserve recognition, we anticipated a conservative assessment by McDaniel in assigning 2P reserves representing only 26% of exploitable oil-in-place ("EOIP") at Kerrobert. Over time, we anticipate that ultimate recovery factors may achieve planned rates of 65% - 75% of EOIP."

 

- There is no need to use natural gas and water. Just air.

- A well with 10% economic recovery rate can not go to 26%.

- They anticipate an ultimate recovery rate of 65% to 75%.

 

 

 

[value-is-what-you-get]

If increasing a proved and probable energy reserve by 260% is the crack of the bat, then it may indeed be heading for the bleachers!

 

I am sorry but I cannot interpret that the same way as you do:

 

 

Upon closer reading, it appears they have increased something from 10% to 26%.  That's a 260% increase. 

Of what I'm actually not quite sure.  What is your take on this information??

 

Disclosure - I don't own any PBG

[value-is-what-you-get]

 

- There is no need to use natural gas and water. Just air.

- A well with 10% economic recovery rate can not go to 26%.

- They anticipate an ultimate recovery rate of 65% to 75%.

 

 

 

 

from the article:

 

Using conventional oil extraction technology, only 10 per cent of the oil in the reservoir can be economically exploited.

 

But with Petrobank's Toe-to-Heel Air Injection method, the recovery factor for proved plus probable reserves rises to 26 per cent according to McDaniel.

 

. . . what am I missing here - is this just shoddy reporting?

[goldfinger]

It was a type: it is 26% recovery.

What I was pointing out is that the goal is more than that: 65% to 75%.

[finetrader]

trading at 5X cash flow

 

could be a nice entry point.

 

I have a question though. What is the economic rationale of buying a O&G company at 5 times cash flow?

 

If a company don't buy any more land, Capex is 0. Let say that for the next 5 years CF is the same so that in 5 years you get back your investment but after that reserves are depleted because you did'nt buy any more land. So you basically just get back your investment with 0 return.

 

I just don't see the FCF in this business.

Anyone think differently?

[Myth465]

trading at 5X cash flow

 

could be a nice entry point.

 

I have a question though. What is the economic rationale of buying a O&G company at 5 times cash flow?

 

If a company don't buy any more land, Capex is 0. Let say that for the next 5 years CF is the same so that in 5 years you get back your investment but after that reserves are depleted because you did'nt buy any more land. So you basically just get back your investment with 0 return.

 

I just don't see the FCF in this business.

Anyone think differently?

 

You have to buy with the thought that prices will increase or stay high. They have a ton of drilling inventory and significant reserves both booked and unbooked. Technology will also get better bringing in more reserves. All cash flow will go into reserves, bringing in more cash flow.

 

It works because reserves are moving up and prices are going higher. You are betting on high oil prices by buying. They are converting assets into cash flow, and creating more assets by booking reserves. It works well if reserves and oil prices move up. Sucks if the conversion creates assets which are worth less (oil prices fall or reserves get written off for a host of reasons).

 

What are your thoughts on oil prices over the next 10 - 20 years. Thats the question you must answer.

[goldfinger]

What are your thoughts on oil prices over the next 10 - 20 years. Thats the question you must answer.

 

In the case of Petrobank:

 

- netbacks are very high (48-49$ per BOE last quarter, probably in the 60s now).

- they have lots of land already and their NAV has been calculated on a portion of that (around 40%).

- EOR and other technologies are boosting their recovery rates.

- the market is not even pricing heavy oil resources (around 650 MBOE) and THAI.

- the management has a history of adding value (smart acquisition, operations, technology etc...).

 

So it is not about oil prices going higher all the time.

[Myth465]

 

So it is not about oil prices going higher all the time.

 

I think they have to go higher or stay high when 100% of FCF is going into more drilling. Even $60 oil is high when you look at the move from 1990 - 2010. As Prem said oil went hyperbolic.

 

$40 oil puts a huge dent in any mans thesis. When 100% of FCF will be continually reinvested in oil for the foreseeable future you have to at least hope oil stays above $60 inmo.

 

But I see your point.

[goldfinger]

$40 oil puts a huge dent in any mans thesis. When 100% of FCF will be continually reinvested in oil for the foreseeable future you have to at least hope oil stays above $60 inmo.

 

It all has to do with the cycle: companies with large land ownership have projects for high oil prices and projects for lower oil prices. Exploration and drilling new areas should be done when oil prices allow it, rationalization and enhanced recovery when oil prices are not as favorable. Canadian Natural Resources was a great teacher for me as they do just that and they do it well.

[goldfinger]

$40 oil puts a huge dent in any mans thesis

 

That's very true these days. Peak oil seems real though. I do not understand why people are not looking at worldwide export numbers. They just haven't increased since 2005. Egypt as a side note became an importer last year.

Buffett/Munger, Watsa, Berkowitz all seem to understand the peak oil concept also.

[Myth465]

$40 oil puts a huge dent in any mans thesis

 

That's very true these days. Peak oil seems real though. I do not understand why people are not looking at worldwide export numbers. They just haven't increased since 2005. Egypt as a side note became an importer last year.

Buffett/Munger, Watsa, Berkowitz all seem to understand the peak oil concept also.

 

I agree I am a peak cheap energy guy. I like the strategy you outlined that CNQ uses. I also like what SD is doing. Hedge oil when its high and dont care after that. Hedge above 100% and out to 5 years with high rates of returns.

 

I really think we will have rolling oil induced recessions which kill the price of oil only to start the cycle all over again.

[goldfinger]

I really think we will have rolling oil induced recessions which kill the price of oil only to start the cycle all over again.

 

Exactly. The relative price of oil is going up however as we replace cheap oil with more expensive sources all the time. In the past (2005-2006) some specialists I was following were estimating a 7% depletion rate post peak on cheap oil sources worldwide! That's sobering!

[Myth465]

To the hedges go the spoils.

 

I may have to add more oil to my portfolio which is what I really dont want to do. I learned with FBK that one shouldnt own a stock which isnt rallying in an industry that is. None of the rally and all of the pullback.

 

This thing is getting dirt cheap.