ROK
Re: ROK
ROK Resources is a small Canadian producer that expects around 4,150 BOEPD (52% oil) in 2024 production.
ROK's operating costs are relatively high, so its corporate breakeven point looks to be in the $70s for WTI oil.
The majority of ROK's assets also appear to require $80+ WTI oil for a 1.5 year or less payback period.
ROK's leverage appears reasonable with net debt projected at 0.7x EBITDAX at the end of 2024.
It has a very large amount of warrants and options with a CAD$0.25 exercise price that may slow any share price appreciation beyond that point.
ROK Resources (ROK:CA)(OTCQB:ROKRF) is a small Canadian oil producer with assets in Southeast Saskatchewan and the Kaybob region (Alberta). It also owns 25% of an exploration-stage joint venture focused on lithium brine properties.
ROK is currently projected to generate neutral cash flow in 2024. ROK's leverage appears reasonable, with its net debt expected to be around 0.7x EBITDA at the end of 2024. However, the majority of its assets require US$80+ WTI oil to generate good returns.
With my long-term commodity price estimate remaining at US$75, I am neutral on ROK Resources at its current share price. I estimate ROK's value at CAD$0.265 (US$0.192) per share if it gets some credit for its development assets. However, including only PDP value would drop its estimated value to CAD$0.158 (US$0.114) per share, so there isn't much of a safety buffer there.
ROK also has a large amount (equal to 57% of ROK's current outstanding shares) of warrants and options with an exercise price of CAD$0.25 (US$0.181) per share. This would likely slow ROK's share price appreciation above that exercise price.
This report uses US dollars unless otherwise noted and an exchange rate of US$1.00 to CAD$1.38.
ROK expects approximately 4,150 BOEPD in 2024 production, with a production mix of around 52% oil, 11% NGLs and 37% natural gas.
At current 2024 strip prices (including US$76 to $77 WTI oil), ROK is projected to generate US$62 million in oil and gas revenues before hedges. It appears that ROK realized around US$17 below WTI for its oil in Q1 2024, but realized around US$7 below WTI in 2023. I'm modeling its full-year 2024 realized oil price at US$11 to US$12 below WTI, including the results from Q1 2024.
ROK's 2024 hedges should have slightly positive overall value and it also generates a minor amount of processing income.
Units
$ Per Unit
$ Million USD
Oil
789,828
$65.00
$51
NGLs
167,079
$38.00
$6
Natural Gas
3,371,958
$1.60
$5
Processing And Other Income
$2
Hedge Value
$1
Total
$65
This results in a projection that ROK will generate zero free cash flow in 2024 at current strip. ROK's adjusted net debt was CAD$18.5 million (US$13.4 million) at the end of 2023.
Thus it may also end 2024 with around US$13.4 million in adjusted net debt.
Royalties
$11
Operating Expenses
$31
General And Admin
$4
Cash Interest
$1
Capital Expenditures
$18
Total Expenses
$65
ROK's 2024 production is expected to be around 1% lower than its Q4 2023 production, although it shut-in some Kaybob production due to low natural gas prices. Without that shut-in production, ROK's 2024 production would probably have been marginally (around +1%) higher than its Q4 2023 production.
Notes On Operating Costs
ROK's operating costs are fairly high at around US$20 per BOE for production that is a bit over 50% oil. This does including processing and transportation costs, but is also based on production before royalties. Based on post-royalty production numbers (which would make the reporting comparable to US companies), ROK's operating costs would be over US$24 per BOE. The high operating costs contribute to ROK's corporate breakeven point being in the $70s for WTI oil.
ROK's Operating Expenses
ROK's Operating Expenses (rokresources.ca)
Notes On Assets
ROK currently expects approximately 4,300 BOEPD (64% liquids) in 2H 2024 production. ROK's SE Saskatchewan assets account for around 67% of its total production and 83% of its liquids
ROK's assets are generally not top-tier. It has 117 booked inventory locations. ROK's Kaybob assets include 15 booked inventory locations, but it would take low-US$80s WTI oil to generate solid returns there (with a payout period of 1.5 years or less). It has another 70+ booked inventory locations in Southeast Saskatchewan (targeting the Midale formation) and those also require roughly $80 WTI oil for a 1.5 year payback.
Only ROK's 25+ booked inventory locations (targeting the Frobisher formation in SE Saskatchewan) can be considered strong, with an expected 1.0 year payback time at $70 WTI oil. It is focusing its development on the Frobisher currently, with around 80% of its 2024 development wells targeting that formation. However, ROK currently only has around 4 years of remaining Frobisher inventory (based on its 2024 development pace) even if its 15+ unbooked Frobisher inventory locations are included.
Hub City Lithium
ROK also owns a 25% stake in Hub City Lithium. While it has highlighted that Hub City's Viewfield Lithium Brine Project as potentially having a NPV-8 (pre-tax) of US$1.5 billion, that project is a long way from becoming a reality and has massive funding requirements.
The estimated US$571 million in project capex is close to 10x the market cap of the two companies involved in the Hub City Lithium Joint Venture.
To put a current value on ROK's stake in Hub City Lithium, I've looked to the valuation of its JV partner.
EMP Metals is publicly traded and appears to be valued at around CAD$28 million currently, net of estimated cash on hand from July 2024. EMP owns 75% of Hub City Lithium, so that would result in a value of approximately CAD$9 million (US$6.5 million) for ROK's 25% stake in Hub City Lithium.
This large discount to the potential project value reflects the hurdles involved in getting the project financed and then operational.
Share Count
ROK had 218.4 million shares outstanding at the end of Q1 2024, but it also had a large number of outstanding warrants and stock options. ROK has 113.1 million in outstanding warrants that expire in early March 2025. These warrants are currently slightly out of the money with an exercise price of CAD$0.25 per share.
ROK's Warrants
ROK's Warrants (rokresources.ca)
ROK also has 19.86 million outstanding stock options, with 18.45 million of those being currently exercisable. Only 1.6 million are currently in the money, but another 14.31 million have exercise prices (at CAD$0.25 to $0.28 per share) that are reasonably close to ROK's current share price.
ROK's Stock Options
ROK's Stock Options (rokresources.ca)
Valuation
ROK is projected to generate approximately US$20 million EBITDA at 2024 production levels plus my long-term commodity price of US$75 WTI oil. At a 2.5x EV/EBITDA multiple, this would value ROK at around US$50 million, not including the US$6.5 million value from its joint venture stake.
I'd consider US$50 million to be a relatively favorable valuation for ROK's oil and gas assets. It reported proved reserves with a PV-10 of CAD$130 million (US$94 million) at the end of 2023, but its PDP reserves only had a PV-10 of CAD$44 million (US$32 million). ROK's PDP reserves also have a slightly negative undiscounted value due to significant long-term asset retirement obligations.
If we use a value of $US50 million for ROK's oil and gas assets, after subtracting net debt that leaves around US$43 million in value for ROK's equity including the value of its joint venture stake.
ROK would have 343.4 million shares outstanding if its CAD$0.15 and CAD$0.25 warrants and stock options were exercised. The exercise of those warrants and options would give ROK another CAD$31 million (US$23 million) in proceeds.
ROK would have US$66 million in post-exercise value in this scenario, which translates into approximately CAD$0.265 (US$0.192) per share.
However, valuing ROK based on PDP PV-10 only would reduce its estimated value to around CAD$0.158 (US$0.114) per share. This also assumes that its CAD$0.25 warrants and options aren't exercised.
Conclusion
I am generally neutral on ROK Resources at its current share price. It is a company that looks better suited to a long-term US$80s WTI oil scenario due to its corporate breakeven point and the oil price most of its assets need for good returns.
I am still using $75 WTI oil as my long-term commodity price, which is a situation where ROK can keep production stable without cash burn, but probably would have negative free cash flow if it wanted to grow production more than a marginal amount.
ROK also has a large amount of warrants and options with a CAD$0.25 exercise price. The exercise proceeds would easily eliminate ROK's net debt, but ROK would also see its share count go up by over 50%.
ROK's operating costs are relatively high, so its corporate breakeven point looks to be in the $70s for WTI oil.
The majority of ROK's assets also appear to require $80+ WTI oil for a 1.5 year or less payback period.
ROK's leverage appears reasonable with net debt projected at 0.7x EBITDAX at the end of 2024.
It has a very large amount of warrants and options with a CAD$0.25 exercise price that may slow any share price appreciation beyond that point.
ROK Resources (ROK:CA)(OTCQB:ROKRF) is a small Canadian oil producer with assets in Southeast Saskatchewan and the Kaybob region (Alberta). It also owns 25% of an exploration-stage joint venture focused on lithium brine properties.
ROK is currently projected to generate neutral cash flow in 2024. ROK's leverage appears reasonable, with its net debt expected to be around 0.7x EBITDA at the end of 2024. However, the majority of its assets require US$80+ WTI oil to generate good returns.
With my long-term commodity price estimate remaining at US$75, I am neutral on ROK Resources at its current share price. I estimate ROK's value at CAD$0.265 (US$0.192) per share if it gets some credit for its development assets. However, including only PDP value would drop its estimated value to CAD$0.158 (US$0.114) per share, so there isn't much of a safety buffer there.
ROK also has a large amount (equal to 57% of ROK's current outstanding shares) of warrants and options with an exercise price of CAD$0.25 (US$0.181) per share. This would likely slow ROK's share price appreciation above that exercise price.
This report uses US dollars unless otherwise noted and an exchange rate of US$1.00 to CAD$1.38.
ROK expects approximately 4,150 BOEPD in 2024 production, with a production mix of around 52% oil, 11% NGLs and 37% natural gas.
At current 2024 strip prices (including US$76 to $77 WTI oil), ROK is projected to generate US$62 million in oil and gas revenues before hedges. It appears that ROK realized around US$17 below WTI for its oil in Q1 2024, but realized around US$7 below WTI in 2023. I'm modeling its full-year 2024 realized oil price at US$11 to US$12 below WTI, including the results from Q1 2024.
ROK's 2024 hedges should have slightly positive overall value and it also generates a minor amount of processing income.
Units
$ Per Unit
$ Million USD
Oil
789,828
$65.00
$51
NGLs
167,079
$38.00
$6
Natural Gas
3,371,958
$1.60
$5
Processing And Other Income
$2
Hedge Value
$1
Total
$65
This results in a projection that ROK will generate zero free cash flow in 2024 at current strip. ROK's adjusted net debt was CAD$18.5 million (US$13.4 million) at the end of 2023.
Thus it may also end 2024 with around US$13.4 million in adjusted net debt.
Royalties
$11
Operating Expenses
$31
General And Admin
$4
Cash Interest
$1
Capital Expenditures
$18
Total Expenses
$65
ROK's 2024 production is expected to be around 1% lower than its Q4 2023 production, although it shut-in some Kaybob production due to low natural gas prices. Without that shut-in production, ROK's 2024 production would probably have been marginally (around +1%) higher than its Q4 2023 production.
Notes On Operating Costs
ROK's operating costs are fairly high at around US$20 per BOE for production that is a bit over 50% oil. This does including processing and transportation costs, but is also based on production before royalties. Based on post-royalty production numbers (which would make the reporting comparable to US companies), ROK's operating costs would be over US$24 per BOE. The high operating costs contribute to ROK's corporate breakeven point being in the $70s for WTI oil.
ROK's Operating Expenses
ROK's Operating Expenses (rokresources.ca)
Notes On Assets
ROK currently expects approximately 4,300 BOEPD (64% liquids) in 2H 2024 production. ROK's SE Saskatchewan assets account for around 67% of its total production and 83% of its liquids
ROK's assets are generally not top-tier. It has 117 booked inventory locations. ROK's Kaybob assets include 15 booked inventory locations, but it would take low-US$80s WTI oil to generate solid returns there (with a payout period of 1.5 years or less). It has another 70+ booked inventory locations in Southeast Saskatchewan (targeting the Midale formation) and those also require roughly $80 WTI oil for a 1.5 year payback.
Only ROK's 25+ booked inventory locations (targeting the Frobisher formation in SE Saskatchewan) can be considered strong, with an expected 1.0 year payback time at $70 WTI oil. It is focusing its development on the Frobisher currently, with around 80% of its 2024 development wells targeting that formation. However, ROK currently only has around 4 years of remaining Frobisher inventory (based on its 2024 development pace) even if its 15+ unbooked Frobisher inventory locations are included.
Hub City Lithium
ROK also owns a 25% stake in Hub City Lithium. While it has highlighted that Hub City's Viewfield Lithium Brine Project as potentially having a NPV-8 (pre-tax) of US$1.5 billion, that project is a long way from becoming a reality and has massive funding requirements.
The estimated US$571 million in project capex is close to 10x the market cap of the two companies involved in the Hub City Lithium Joint Venture.
To put a current value on ROK's stake in Hub City Lithium, I've looked to the valuation of its JV partner.
EMP Metals is publicly traded and appears to be valued at around CAD$28 million currently, net of estimated cash on hand from July 2024. EMP owns 75% of Hub City Lithium, so that would result in a value of approximately CAD$9 million (US$6.5 million) for ROK's 25% stake in Hub City Lithium.
This large discount to the potential project value reflects the hurdles involved in getting the project financed and then operational.
Share Count
ROK had 218.4 million shares outstanding at the end of Q1 2024, but it also had a large number of outstanding warrants and stock options. ROK has 113.1 million in outstanding warrants that expire in early March 2025. These warrants are currently slightly out of the money with an exercise price of CAD$0.25 per share.
ROK's Warrants
ROK's Warrants (rokresources.ca)
ROK also has 19.86 million outstanding stock options, with 18.45 million of those being currently exercisable. Only 1.6 million are currently in the money, but another 14.31 million have exercise prices (at CAD$0.25 to $0.28 per share) that are reasonably close to ROK's current share price.
ROK's Stock Options
ROK's Stock Options (rokresources.ca)
Valuation
ROK is projected to generate approximately US$20 million EBITDA at 2024 production levels plus my long-term commodity price of US$75 WTI oil. At a 2.5x EV/EBITDA multiple, this would value ROK at around US$50 million, not including the US$6.5 million value from its joint venture stake.
I'd consider US$50 million to be a relatively favorable valuation for ROK's oil and gas assets. It reported proved reserves with a PV-10 of CAD$130 million (US$94 million) at the end of 2023, but its PDP reserves only had a PV-10 of CAD$44 million (US$32 million). ROK's PDP reserves also have a slightly negative undiscounted value due to significant long-term asset retirement obligations.
If we use a value of $US50 million for ROK's oil and gas assets, after subtracting net debt that leaves around US$43 million in value for ROK's equity including the value of its joint venture stake.
ROK would have 343.4 million shares outstanding if its CAD$0.15 and CAD$0.25 warrants and stock options were exercised. The exercise of those warrants and options would give ROK another CAD$31 million (US$23 million) in proceeds.
ROK would have US$66 million in post-exercise value in this scenario, which translates into approximately CAD$0.265 (US$0.192) per share.
However, valuing ROK based on PDP PV-10 only would reduce its estimated value to around CAD$0.158 (US$0.114) per share. This also assumes that its CAD$0.25 warrants and options aren't exercised.
Conclusion
I am generally neutral on ROK Resources at its current share price. It is a company that looks better suited to a long-term US$80s WTI oil scenario due to its corporate breakeven point and the oil price most of its assets need for good returns.
I am still using $75 WTI oil as my long-term commodity price, which is a situation where ROK can keep production stable without cash burn, but probably would have negative free cash flow if it wanted to grow production more than a marginal amount.
ROK also has a large amount of warrants and options with a CAD$0.25 exercise price. The exercise proceeds would easily eliminate ROK's net debt, but ROK would also see its share count go up by over 50%.
Re: ROK
My take is they need a higher oil price to go up and it is neutral at 70-75 Wti . They seem to have discipline in not incurring more debt basically spending what they generate with fcf at 0 after cap ex
The Canadian companies look as a group cheaper than American counterparts. One problem with Rok is size and the reliance on retail investors .
The other problem is the narrative we are in oversupply and a recession is coming
Offsetting that is Middle East unrest. Israel threatened Iran
With attacks on their oil infrastructure if they continue to target Israel. If that happens, crude could soar
The Canadian companies look as a group cheaper than American counterparts. One problem with Rok is size and the reliance on retail investors .
The other problem is the narrative we are in oversupply and a recession is coming
Offsetting that is Middle East unrest. Israel threatened Iran
With attacks on their oil infrastructure if they continue to target Israel. If that happens, crude could soar
Re: ROK
Look at my forecast and you can see that ROK should generate more than enough operating cash flow to cover their 2024 capex program. They recently completed ten new wells, so production should ramp up in Q3. Balance sheet is in good shape.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group