Bill Newman, vice president of international and domestic oil and gas research with Mackie Research Capital, discusses two companies that are Mackie top picks that have recently announced updates that he believes could unlock substantial additional upside for investors.
In April 2018, Mackie Research Capital featured an article on Streetwise Reports that commented on the disconnect between the strong recovery in the price of oil and lack of response by most energy stocks. With valuations near unprecedented lows, Mackie highlighted oil and gas stocks that are fundamentally undervalued and well positioned for when valuations revert to the norm. Two of Mackie top picks that have multi-bagger return potential from the current levels have recently announced exciting updates that could unlock substantial additional upside for investors.
On July 30, 2018, Prairie Provident Resources Inc. (PPR:TSX) announced a very positive drilling update at its Princess core area, with two new wells each producing at ~900 boe/d and a third exploration well testing ~770 boe/d. These are boomer wells which are on track for three-month payouts making them of some of the best performing non-resource oil producing wells in Alberta. In addition, PPR has a potential significant cash windfall coming from a Quebec settlement that positions the stock for a rerate.
Point Loma Resources Ltd. (PLX:TSX) announced on July 25, 2018, two exciting new Banff oil pool opportunities, captured on company lands, that are on trend with other significant Banff oil pools that hold an average of 62 million barrels (mmbbls)of original oil in place (OOIP). PLX expects to drill a horizontal well targeting its Banff opportunities in Q4/18 that could be a game-changer for the company while also having a sizeable stake in the Duvernay Shale oil play that continues to evolve in PLX’s area of operations.
Both PPR and PLX have a large inventory of low cost Mannville drilling locations that form the bases for years of low risk steady growth production, and both companies have upcoming near-term events that could be transformational and game-changers for the stocks.
PRAIRIE PROVIDENT RESOURCES INC. – PPR – TSX
PPR is focused on the development of its conventional oil weighted assets in the Wheatland and Princess properties in Southern Alberta and its Evi area located in the Peace River Arch area of Northern Alberta. PPR also holds ~240,000 net acres in the St. Lawrence Lowland of Quebec that are prospective for the Utica Shale. The company remains highly undervalued on a cash flow, reserves and NAV basis and receives no option value for its Quebec assets. In addition, with the recent drilling success at its Princess core area, production has increased to over 6,000 bbl/d (~75% liquids).
Three Boomer wells at Princess: Year to date, PPR has drilled a total of five wells in the Princess area, all successful. The three most recently drilled wells are boomers, which are on track for three-month payouts. The 100/13-24-20-11W4 well (“13-24”) continues to exceed expectations with an average rate 940 boe/d (75% liquids) in July. The 13-24 well is one of best performing non-resource oil producing wells in Alberta. The 102/13-26-20-11W4 follow-up well was recently placed on production at a constrained rate of 900 boe/d (85% liquids) and we expect this too will be one of the best non-resource oil wells in Alberta. PPR also drilled the 103/14-12-019-11W4 exploration well targeting a new Glauconite channel, which flow tested at an initial rate of 770 boe/d (56% liquids) and was very recently placed on production. PPR has multiple follow up locations to drill, which could build production prior to year-end.
Potential Cash Windfall from Quebec Settlement Could Rerate the Stock: PPR is seeking damages of US$188.9 million related to the termination of the rights to one of the company’s licences in Quebec. The final hearing concluded in November 2017 and a ruling in the dispute and potential damages could be announced in H2/18. Over a five-year period PPR committed a significant amount of time and capital to securing the exploration licences, acquiring and interpreting seismic and drilling wells. We feel damages of between US$25 million to US$60 million would certainly be in the realm of possibility. Damages at the low end of this range would allow the company accelerate growth through drilling or acquisitions, and could re-rate the stock.
Prairie Provident Resources’ (PPR:TSX) Value Highlighted by Similar Acquisition
On September 6, Surge Energy Inc. (SGY:TSX) announced the acquisition of privately held Mount Bastion Oil and Gas Corp. (MBOG) for total consideration of C$320 million. Bill Newman of Mackie Research provided the following comparison of Mount Bastion to Prairie Provident Resources Inc. (PPR:TSX):
“With ~5,500 boe/d of production and 25 million boe of proven plus probable reserves (2P), MBOG and PPR and have similar sized assets. Based upon the acquisition cost price of $320 million, this infers a value of $2.13 per share for PPR. Given that MBOG’s asserts are 98% weighted to light oil, and generate higher netbacks, we calculate an adjusted value for PPR in the range of $1.31 to $1.96/share.
“Both companies are producing ~5,500 boe/d, and MBOG has slightly large 2P reserves of 25 million versus PPR’s 21 million boe. Surge pays $58,182 per flowing boe, $12.80/boe for 2P reserves and a net operating income multiple of 3.8x. At the current market price PPR is trading at only $22,557 per flowing barrel and an EV/2P reserves value of $5.97/boe. We note that MBOG has a higher percentage of oil production at 98% versus PPR’s 70%. As a result, we have adjusted our valuation based on operating income. A net operating income multiple of 3.8x values PPR at $1.01 per share, which is a 132% premium to the current stock price. PPR’s 2P reserves at $12.80/boe value PPR at $1.66/share or a 282% premium to the stock price. Including a conservative potential …read more
From:: The Energy Report