PetroBakken

[dan_s]

High Yield Income Portfolio: An update profile for PetroBakken Energy, Ltd. has been posted under the Watch List Tab.

I get a lot of questions about PetroBakken (PBN.TO and PBKEF on the pink sheets in the U.S.). The share price peaked in mid-September around $15. PetroBank announced it was going to distribute its stake in PetroBakken as a special dividend around that time and the PetroBakken shares started a decline to $9/share. I believe the announced distribution and concern over the company's ability to continue paying monthly dividends led to the decline in share price. The company has repeatedly said it plans to continue paying dividends.

On January 11th the company issued an operations update. I thought the update was very encouraging. Production in December is up 38% from their average daily production in Q3, what's not to like about that? With oil prices moving higher, you'd think the market would have reacted quite positively. However, the market focused on the company's announcement of the reduction in their capital expenditure program for 2013, which added some fuel to the fear that the company has some financial difficulties.

It now appears the company may be targeting the takeover a couple Canadian Juniors as a way to increase its stake in the Cardium. Despite the firm's name, the real upside for PetroBakken is the Cardium play in Alberta, not the Bakken.

Based on the trading activity the last two weeks, it appears the stock has found a floor. At $9/share the annual dividend is 10.5%.

My take is that confusion surrounding the spinoff started the selloff. I think the reduced capital program is prudent for the company. Even with the reduced capital program, average daily production should increase by approximately 10% year-over-year.

PetroBakken is heavily weighted to oil and it will produce over 50,000 boepd during the first quarter. Unless there is a significant drop in crude oil prices, I do not see much near-term risk for the company. The monthly dividend appears to be sustainable.

Read the profile carefully.

[danross70]

Dan, do you have any take on how much of PBN's production is condensate, which is drawing a premium price?

[dan_s]

Most of their production is crude oil. They got $78.40/bbl for all liquids in Q3. I am using $80/bbl in my forecast model since Canadian oil is selling at a discount to WTI.

Cardium oil is high quality.

[mrbill]

Dan, what about Petrobank now?
mrbill

[dan_s]

If you still own PetroBank, I would hang tough. We need to see the post-distribution balance sheet to see where they really stand. I think they have about $100 million cash and several oil sands projects.