petobakken

[prince_jake_33]

Dan How does this evaluation look to you?

Valuing publicly traded equities is not an exact science. I've never had much interest in discounted cash-flow analysis that projects cash flows out for forty years. A little tweak in an assumed growth rate changes the valuation derived from such an analysis by large amounts.

My valuation approach is to try and use common sense. If I want to buy something as heavy as an elephant I immediately pass on anything that looks like a mouse. If I'm not sure if I understand something, I try and take a pass.

But the best tool I know of that is available to help me value a company is to look at what other companies in the same industry, with the same assets are sold for to arm's length profit motivated buyers.

With that in mind, I would like to look at the price just paid for Bakken oil producer Brigham Exploration (BEXP) and compare it to Bakken oil producer Petrobakken (PBKEF.PK).

Here we go.

Statoil (STO) just paid $36.50 per share for Brigham Exploration. That equates to an enterprise value of $4.7 billion.
Petrobakken currently has an enterprise value of just under $3.5 billion.

Price Per Flowing Barrel

Brigham Exploration is currently producing 21,000 boe/day. With a $4.7 billion enterprise valuation that equates to $223,000 per flowing barrel.
Petrobakken with a $3.5 billion enterprise value and 43,000 boe/day of production is being valued at $81,000 per flowing barrel. By year end Petrobakken is expected to be at 47,500 per day which will be $73,000 per flowing barrel.
Petrobakken is trading at one third of the Brigham deal on a flowing barrel basis.

Multiple of EBITA

For the six months ended June 30, 2011 Brigham had an EBITA of $137 million. On an annual basis that would be roughly $280 million. That would be an EBITA multiple of $4.7 billion / $280 million = 16.79 times
At $85 oil and the year end exit rate of 47,500 barrels per day of production Petrobakken is going to have EBITA of $850 million. With a $3.5 billion enterprise value Petrobakken is trading at a $3.5 billion / $850 million = 4.11 times
Petrobakken is trading at one quarter of the Brigham deal on a multiple of EBITA basis

Multiple of Proved Reserves

Brigham (as of the December 2010 reserve report) has 67 million barrels of proved reserves. A $4.7 billion valuation suggests Statoil is paying $4.7 billion / 67 million = $70 per barrel of proved reserves
Petrobakken (as of the December 2010 reserve report) has 103 million barrels of proved reserves. With a $3.5 billion enterprise value Petrobakken is being valued at $34 per barrel of proved reserves.
Petrobakken is trading at one half the valuation of proved reserves and is also subject to more conservative Canadian reserve booking requirements.

Multiple of PV 10 Value of Proved Reserves

The PV10 value of Brigham's 67 million barrels of proved reserves is $1.1 billion. The $4.7 billion purchase prices suggests that Statoil is paying $4.7 billion / $1.1 billion = 4.27 times the PV10 value of proved reserves.
The PV10 value of Petrobakken's 103 million barrels of proved reserves is $2.8 billion. With an enterprise value of $3.5 billion Petrobakken is being valued at 1.25 times the PV10 value of proved reserves.

Petrobakken is trading at less than one third of the valuation being applied to the PV10 value of Brigham's proved reserves.
Sum These Various Metrics Up

Price per flowing barrel - Petrobakken is trading at one third of the Brigham valuation
Multiple of EBITA - Petrobakken is trading at one quarter of the Brigham valuation
Multiple of Proved Reserves - Petrobakken is trading at one half of the Brigham valuation
Multiple of PV10 Value - Petrobakken is trading at less than one third of the Brigham valuation

I don't know exactly what Petrobakken is worth. But common sense tells me that an acquirer would be willing to pay a lot more than the current share price.

Petrobakken is just like Brigham. They are both companies that have years and years of drilling locations ahead of them and both companies sit on vast amounts of oil. That is why the multiples of flowing barrel of production and EBITA being paid for Brigham are so high.

You can't value these companies using the same approach as you do for a conventional oil and gas producer. Much of the value is in the huge land positions that these companies have in unconventional resource plays. And much of that doesn't show up in proved reserves because most of the undeveloped acreage isn't booked as proved reserves.

It isn't just Petrobakken that is massively undervalued right now. The entire sector in Canada is. Pick an unconventional producer and I almost guarantee it is trading at 50% or less than what an acquirer would pay.

All it takes is some common sense to see it. And some patience to wait for Mr. Market to figure it out.

Disclosure: I am long PBKEF.PK.

[dan_s]

My Fair Value estimate for PetroBakken is $24/share. You can see how I arrive at that by downloading the spreadsheet that sits under the Sweet 16 tab under the PetroBank logo. PetroBank owns 59% of PetroBakken.

You can't really compare Brigham Exploration to PetroBakken. BEXP is a pure play on the Bakken Shale with some of the most valuable acreage in the play. PetroBakken is drilling Bakken wells north of the border where the wells aren't as good. Still quite profitable at $80/bbl. The real value of PetroBakken is what they have in the Cardium.

Take a look at my forecast for Vero Energy (VRO.TO). It is a pure play on the Cardium and is now trading for less than 2X cash flow per share.

I do agree that some Canadian based companies are grossly undervalued by the market (i.e. GTE and PMG)

The BEXP takeover should draw more attention to CLR, OAS, KOG, WLL and DNR, which has a very nice acreage block in the Bakken. NOG is also a pure play on the Bakken but since it only holds outside operated working interest it will not be attractive to the major players.

[prince_jake_33]

Calgary, Alberta – October 17, 2011 – PetroBakken Energy Ltd. (“PetroBakken”) (TSX:PBN) is
pleased to announce that our cash dividend for the month of October will be paid on
November 15, 2011 to all PetroBakken shareholders of record on October 31, 2011. The
October dividend will be $0.08 per PetroBakken share. The ex-dividend date is
October 27, 2011.
PetroBakken Energy Ltd. is an oil and gas exploration and production company combining
light oil Bakken and Cardium resource plays with conventional light oil assets, delivering
industry leading operating netbacks, strong cash flows and production growth. PetroBakken is
applying leading edge technology to a multi-year inventory of Bakken and Cardium light oil
development locations, along with a significant inventory of opportunities in the Horn River and
Montney gas resource plays in northeast BC. Our strategy is to deliver accretive production and
reserves growth, along with an attractive dividend yield.
FOR FURTHER INFORMATION PLEASE C

[dan_s]

I have asked them several times if they plan to cut the dividend. They have always told me they have no intention to cut or discontinue the dividend. Of course that is what they are going to say.

I have known the management team for a long time. They are good smart people.

PetroBakken, PetroBank and Petrominerales are all heavily leveraged to oil. If oil stays over $80 they will be fine. If is moves over $90 they will do a lot better and over $100 they will do fantastic.