PBN - Petrobakken

[Myth465]

Finally bought some shares today. Man this is cheap. Amazing but it always seems to happen, the stocks that dont go up in the rally still get knocked down on the pullback.

 

Also looking at Corridor. I am shifting my capital to these stocks, stocks which are cheap on current production, but offer untold upside via technology, enhanced recovery, and acreage. ATPG has been nice but I will pair down my position after the next bounce.

 

Crazy that you can find an oil and gas stock trading around a 52 week low. I also like that the Petrobakken convertible bonds are less than 3.5% and they dont make money money really until we hit $37   ;D.

 

I cant really put a value on Thai and try to avoid tar sands, bitamen, heavy oil in the ground (BQI), but its all free with Bakken where it is. Now if only they can hit the production target this year. Those decline rates are fairly step.

 

Do these guys hedge a significant amount of production? Thats the only piece that may be missing. I dont see oil in the 100s for long.

 

---

 

Swizzed thanks again. Your articles make it much easier on us working stiffs. I owe you some cash.

[Swizzled]

 

How about you thank me on Petrobank when we actually make some money.

 

I think this is a great time to get in on this provided we don't get a real reversal in oil prices.  I updated some valuation thinking here:

 

http://seekingalpha.com/article/259202-petrobank-energy-undervalued-with-technology-that-could-be-worth-billions

 

I've been running some numbers on the Kerrobert economics and it is really highly profitable at 300 barrels a day.  The entire stock market seems so glued to the maximum expected production of 600 barrels per day that they forget that it is just fine at 300.  Remember this is economic production from an already produced field that can't be produced using conventional techniques.

 

And you don't pay a dime for the technology in the current share price, or the 600 million barrels of oil in the parent company.  The amazing thing to me is that the CEO has a tremendous track record yet the assets are priced at a ridiculous discount.

 

 

[Myth465]

They seem very shrewd. It seems like they love the business and have a longer time horizon then Mr. Market. I think this too shall pass and they remind me of SD. Mr. Market has lost faith and is giving us a chance to buy.

 

I love the no decline rates on the none conventional stuff and the natural gas injection. I owned REN at some point and they do EOR using CO2. Gas is cheaper and you can recover it when gas hits $5 - $6, plus Canada is awash in cheap gas. There is lots of potential here, similar to Corridor (which I read about in your link), you dont have to know how it will turn out or what the assets are worth. You can get to the price based on the easy to value bits and take everything else as free call options.

 

ATPG is quite risky and will be dicey for at least 1 more year. Time is not there friend right now, but Petrobakken and Petrobank get better with age and time and research. I have decided to take off some easy money from SD and ATPG and put it here.

 

Thanks again.

[enoch01]

John Hempton has posted an insightful analysis of one of Petrobakken's competitors:

 

http://brontecapital.blogspot.com/2011/03/northern-oil-and-gas-its-only-northern.html

[Myth465]

John Hempton has posted an insightful analysis of one of Petrobakken's competitors:

 

http://brontecapital.blogspot.com/2011/03/northern-oil-and-gas-its-only-northern.html

 

Very interesting. I saw this yesterday and have thought quite a bit about the decline rates, Its part of why I dont buy shale producers and why I like SD. Its like an uphill race wearing leg weights. You can see it in current year production vs. last year.

 

They expect 50k this year which is 25% more about. I will be watching.

[goldfinger]

Very interesting. I saw this yesterday and have thought quite a bit about the decline rates, Its part of why I dont buy shale producers and why I like SD. Its like an uphill race wearing leg weights. You can see it in current year production vs. last year.

 

They expect 50k this year which is 25% more about. I will be watching.

 

Swizzled already responded to that analysis. I understood the same thing from Wright and reports. So I am going to just copy the link here:

http://valueinvestorcanada.blogspot.com/2011/03/excellent-article-on-northern-oil-and.html

[tyska]

There is also a couple of directors, Themig and Lothian that have bought close to a 100,000 shares on the dip of late. No small chunk of change, so one would think they have some insight into what is going on.

 

Does anyone know offhand how the cardium compares to the bakken as far as decline rates and tightness of formation, or is there not enough data out of there yet.

Thanks

[finetrader]

Perhaps Petrobakken is a good investment at this price, but look at Crescent Point, an another big player in the bakken, the adverse weather didn't seems to have stopped them from increasing production in the bakken.

 

Crescent Point are better operators and thay have lots of reserve. Of course P/B is 2.31.   And PBN P/B is 1.77( adjusted for goodwill)

 

 

 

 

[Swizzled]

"Perhaps Petrobakken is a good investment at this price, but look at Crescent Point, an another big player in the bakken, the adverse weather didn't seems to have stopped them from increasing production in the bakken."

 

The Petrobakken production impacted by weather was in Alberta, the Cardium play.  The Bakken is in Saskatchewan which was not impacted in the same manner.  Don't get me wrong, Petrobakken's Bakken production was disappointing.

 

The recent insider buying is especially interesting when you consider who the insider is:

 

http://seekingalpha.com/article/259761-petrobakken-energy-some-insider-buying-moves-more-noteworthy-than-others

 

[Guest VAL9000]

Hey all,

 

Open question to the board.  I am going on vacation next week and I'm planning on spending a good chunk of that time reading annual reports, etc. (yea, yea, I sure know how to live...)

 

PBN and ATPG are both on my list of companies to dig into, but I think I need a better overall understanding of the oil business.  I am mid-way through "Oil 101" by Morgan Downey (http://www.amazon.com/Oil-101-Morgan-Downey/dp/0982039204/ref=sr_1_1?ie=UTF8&qid=1301150637&sr=8-1) which is excellent.  But, one book is never enough for me.  Usually, I find that reading earnings call transcripts and annual reports are the best way for me to learn a business, but if you have other recommendations I'm all ears.

 

I've never invested in oil before and my neophyte understanding of the business is roughly equivalent to someone who has read half of a book about oil and pumps his own gas.

 

Thanks in advance!

[vinod1]

Fundamentals of Oil and Gas Accounting by Wright. Good description of how the business works along with learning about some of the O&G accounting. I read Oil 101 but found this book to be more useful in actually understanding how the business works.

 

Vinod

[tyska]

http://oilprice.com/Energy/Energy-General/A-New-Trend-in-Fracking-Emerges-The-Recovery-Factor.html?utm_source=twitterfeed&utm_medium=twitter&utm_campaign=Feed%3A+oilpricecom+%28Oil+Price.com+Daily+News+Update%29&utm_content=Twitter

 

Interesting write up on the advances in fracking technology. Might explain why Themig is buying more PBN.

 

"“Lower costs.  Higher oil and gas recoveries.”

 

That's how Dan Themig, President of Packers Plus – a privately owned, Calgary-based fracking (completions) company – describes an interesting new development in fracking...

 

...A development that spells bigger profits for energy producers..."

[Myth465]

Eric Nuttall again.

 

http://watch.bnn.ca/#clip449990

 

Swizzled judging from your blog posts, you have been quite busy and appear to be diversifying quite a bit. What are your thoughts on TAT, also any big reason for casting a wider net.

 

BNN has one of the worst net players I have come across.

[tyska]

First quarter results.

http://finance.yahoo.com/news/PetroBakken-Announces-First-ccn-1427222815.html?x=0&.v=1

"PetroBakken's production averaged 41,562 boepd in the first quarter of

    2011, 87% light oil and NGLs, representing a 1% increase compared to the

    fourth quarter of 2010, and a 4% decrease over the prior year period.

    Light oil production increases, primarily from our Cardium play,

    outpaced declines in our natural gas production base."

 

What am I missing other than that the decline rate must be just huge on their wells. I can think of no other way that your production would be down from last year Q1 when you drilled 110 wells in this first Q alone, not to mention what has been drilled in the other quarters in between. I was willing to give them a little leeway with weather production problems last year. But was expecting some pop with a good winter and late breakup allowing a little catch up.

 

Not sure if rising prices will save them or if I should be looking at an exit strategy.

[Myth465]

 

What am I missing other than that the decline rate must be just huge on their wells. I can think of no other way that your production would be down from last year Q1 when you drilled 110 wells in this first Q alone, not to mention what has been drilled in the other quarters in between. I was willing to give them a little leeway with weather production problems last year. But was expecting some pop with a good winter and late breakup allowing a little catch up.

 

Not sure if rising prices will save them or if I should be looking at an exit strategy.

 

I have the same concerns. Also I dont like that you really have to hunt around to see the cause for lower profits. I wish they would lead with the cause. I mean oil has gone up to $120, and they drilled a huge amount of wells. I figured something should have gave. The only thing I can think of is decline rates, and perhaps not all of the wells have been fracked / hooked up for various reasons. Perhaps the call will expand a bit on the explanation.

 

------

 

 

Will have to think about the info below.

 

Production for the first quarter averaged 41,562 boepd, comprised of 36,140 bopd of light oil and

natural gas liquids and 32,534 Mcf/d of natural gas. Liquids production increased 4% in the first quarter

2011 from the fourth quarter of 2010 due to drilling in the Cardium play in central Alberta.    Gas

production decreased 18% primarily due to declines in base production and facility maintenance issues

temporarily shutting in non‐core production. Completion activity was accelerated in March 2011,

allowing us to significantly increase the number of new Cardium wells on‐production.   We expect our

production to decrease slightly in the second quarter due to natural declines and reduced new well

activity during spring break‐up. In addition, wet surface conditions, particularly in southeast

Saskatchewan, are inhibiting access to existing wells, resulting in shut‐in production. Production for April

2011 is estimated to be 38,000 boepd, based on field estimates, with more than 10% of production shut‐

in due to the inability to service wells and transport oil from single well oil batteries. We will bring this

deferred production back on‐line as soon as weather conditions permit.

[Swizzled]

 

I wrote down some notes on the conference call and earnings

 

http://seekingalpha.com/article/269253-petrobakken-is-the-market-s-gloomy-view-justified

 

I'm not totally sure what the market didn't like.  Production did get up to 43k by the end of March.  They let us know April would be 38k due to wells shut in due to spring break up, but that doesn't really impact the run rate of production.

 

They have 36 wells that are either simply waiting completion, have intentionally not been fracked (now will be with new method), or are fully completed and building pressure.  This represents a lot of spending for which they have not yet received the rewards of production.

 

If you figure the average six month production rate from a Bakken or Cardium well is likely 150 bopd you can see where there is a very easy source of production growth coming if they can get these caught up.

 

The Petrobakken president was pushed on whether 49k per day is really a realistic high end exit rate for the company for 2011 and he still claims it is.  Problem is they haven't done what they have said they would thus far, so his comments don't help as much as they once did.  The stock is certainly priced as though they can't come close to those numbers.

[Guest VAL9000]

Can someone explain spring break-up to me?  This seems like a seasonal issue with the Bakken (and maybe other plays?).  From what I understand the wet weather makes it difficult to move the oil from the well to the delivery point.  Is this because the ground is too soft for trucks to reach the wells?  Or something else?

 

[gaf63]

Val , in Canada and northern US , spring temps melt the ice and snow causing the roads to become impassable

Rigs cant move to new sites and tanker/supply trucks cant access the well sites

[tyska]

 

I wrote down some notes on the conference call and earnings

 

http://seekingalpha.com/article/269253-petrobakken-is-the-market-s-gloomy-view-justified

 

I'm not totally sure what the market didn't like. 

 

Interesting statement, after the two posts before you talking about what we didn't like. It's a growth company and while it is nice that it has grown production over the last quarter, it's production yr/yr is down. I'm not sure how you can think that is not a concern.

 

As far as wells waiting for completion I tried looking back at the Q1/10 release to see how many they may have waiting on average after a winter drilling program, but couldn't see that they had that information. But found it interesting that production growth from Q1 09-10 was 95%. They talked about some production from the acquisition of Result, was all the rest organic or was there more acquisitions not mentioned in that release.

 

But then, they mentioned the rise in the price of oilfield services in their outlook. Yet Total Energy Services is down today and they are scheduled for earnings release today. I'm expecting good numbers there.

[tyska]

I see Total released Q1 while I was typing.

 

http://www.marketwire.com/press-release/total-energy-services-inc-announces-q1-2011-results-tsx-tot-1513195.htm

 

"Total Energy's results for the first quarter of 2011 represent record quarterly revenue, EBITDA and cashflow, driven by continued improvement in industry conditions in Western Canada and the impact of approximately $84 million of net capital investments made by the Company during 2009 and 2010."

 

Also applicable to Petrobakken and any other producer.

 

"Revenue per operating day increased 28% for the first quarter of 2011 relative to the prior year comparable period due primarily to improved pricing and the addition of two owned top drives to the fleet subsequent to March 31, 2010."

[Swizzled]

"Interesting statement, after the two posts before you talking about what we didn't like. It's a growth company and while it is nice that it has grown production over the last quarter, it's production yr/yr is down. I'm not sure how you can think that is not a concern."

 

I'm not saying it isn't a concern.  But how is there any new information as of yesterday's release ?  We knew production was going to be down year on year as it was down going into the quarter.  I think the disappointing 2010 production is likely somewhat already in the stock price given it has gone from $35 entering 2010 to $16 this morning.

 

"As far as wells waiting for completion I tried looking back at the Q1/10 release to see how many they may have waiting on average after a winter drilling program, but couldn't see that they had that information. But found it interesting that production growth from Q1 09-10 was 95%. They talked about some production from the acquisition of Result, was all the rest organic or was there more acquisitions not mentioned in that release."

 

Petrobakken didn't exist as a stand alone company until Q4 2009.  Petrobank spun it's Canadian unit into a new company with TriStar.  This new company then spent $1 billion on acquiring land and companies in the Cardium.

 

[tyska]

"Petrobakken didn't exist as a stand alone company until Q4 2009.  Petrobank spun it's Canadian unit into a new company with TriStar.  This new company then spent $1 billion on acquiring land and companies in the Cardium."

 

Thanks, I came into it from their Result acquisition, so am not all that up on the history. They did mention the acquisition of Tristar, but would have helped to break out how much production came from that when showing Q1/10 against Q1/09. The point still is that they drilled something like 73 wells in Q1/10 and however many in the next 3Q yet production is flat at best. So the decline rate seems to be killing any growth in production.

[S2S]

Swizzled,

 

I might be way off base, but it surely seems like the folks at Petrobakken have never seen an oil or gas patch that they don't want to drill.  And now that management is talking up the search for a "third leg of growth" despite soon exhausting their credit line, raising capital might be the next step. What's your take on this threat of equity dilution?

[Myth465]

I am going to have to think about this one. I can deal with commodity risk / volatility. Hell SD moves around more than any other company in the oil patch. I can ignore all of that due to the manufacturing like setup they have going and constant hedges. I thought Bakken was having a temporary issue last year, which generated some irrational selling, and I would benefit as they performed this year.

 

Its still quite early, but that may not be the case. I also dont know if the dual mandates - distribute income for the parent, and grow production, are compatible given their high decline rates and drilling misteps.

[Swizzled]

"And now that management is talking up the search for a "third leg of growth" despite soon exhausting their credit line, raising capital might be the next step. What's your take on this threat of equity dilution?"

 

I think it is low.  But I also thought Petrobakken would steadily grow production 10% per year so I may not be the person you want to ask.

 

I think these guys believe in their model which indicates significant growth starting in Q3.  They have been voting with their own money buying quite a few shares.  The top man Wright also has most of his net worth in Petrobank and I'd encourage you to look at his history with that company since taking over in 2000.  I have some faith in him which helps me stay somewhat patient.

 

I would also mention that they aren't drilling the Cardium in a manner that simply increases production as quickly as possible.  They are drilling all across the acreage in order to de-risk it and understand what they have.  This means higher initial capex as more roads, and more infrastructure is needed.

 

Don't get me wrong, I am very disappointed with how slow production growth has come.  But I do think Wright manages his business with a long term perspective and not a short term please the stock market approach.