PetroBank
Posted: Wed Mar 23, 2011 12:26 pm
Article below from Seeking Alpha. My updated forecast for PetroBank is now posted to the website. My Fair Value estimate has been raised to $42/share. BTW I still believe that PetroBank will be a HUGE winner for us during the second half of this year. When the weather conditions improve in Canada, they are going to ramp up production sharply. - Dan
I always watch the insider transactions at companies that I have an interest in. I’m sure every equity investor does. There are many different reasons for insiders to sell shares. Income taxes. New home. Excessive lifestyle. But there is really only one reason for an insider to buy. And that is because he or she thinks that the shares of the company at which they have insider knowledge are attractive.
One company that I have an interest in through ownership of its parent company is Canadian light oil producer PetroBakken (PBKEF.PK).PetroBakken had a disappointing 2010 as oil production growth that was anticipated by shareholders failed to materialize.
And when shareholders are disappointed they vote by pushing the sell button with their fingers.PetroBakken, which was formed as a publicly traded company in late 2009 when the Canadian light oil operations of Petrobank (the parent) (PBEGF.PK) were merged with Tristar Oil and Gas, has had its share price decline from $35 in late 2009 to $18 today.
In my opinion there are three main reasons for the production disappointment:
1) Last year was an exceptionally wet year in Western Canada. I live out here and can verify that. Much of the acreage in Alberta that PetroBakken owns in the Cardium play was so wet that they couldn’t get the heavy equipment to their wells on a timely basis. This put them behind on the number of wells they expected to have completed and producing.
2) In 2010, PetroBakken made three acquisitions that totaled well over $1 billion as they entered the Cardium play. It takes a while to integrate one company, so trying to integrate three additional companies within six months of merging two other companies together (Tristar merger) does not lead to seemless operations initially.
3) PetroBakken had some disappointing production results in their Northern Bakken acreage where wells were declining faster than expected because of less than optimal results from their fracking methodology.
Reasons one and two don’t bother me. In fact I think temporary issues that cause some investors to overreact can be a great opportunity for value investors to buy shares on the cheap. Reason number three, though, is a legitimate problem that needs to be addressed by the company (if it can be).
According to PetroBakken they have addressed the problems they were having in the Northern Bakken by developing a new fracking technology. According to company CEO John Wright in the most recent conference call they had 15 Bakken wells on hold (drilled but not fracked) in late 2010. And that now that they have implemented the new methodology the results have been extremely encouraging. According to Wright the results have been so good that PetroBakken’s regional managers through the entire Bakken play now are using the new fracking method.
As an investor at this point all I can do is either believe that they have this problem licked or not believe them. You have to have some faith in management in this instance.
I’ve looked pretty closely at Mr. Wright as a CEO and I have to admit I am a big fan. I think he is very honest and very clearly believes in the concept of management being a steward for shareholders. He and his entire management team have the vast majority of their net worth invested alongside shareholders.
In 2001 he approached the then chairman and CEO of Petrobank (PetroBakken’s parent) about taking over the company and changing its business plan. When 10 years ago Wright took over, Petrobank was a natural gas producer with a market cap of $50 million. Now it is a light oil producer with a market cap of almost $5 billion when you include both Petrobank and its prior ownership in Petrominerales which was spun off at the end of 2010. You don’t do that with smoke and mirrors.
But I saw something yesterday which also helped me get more comfortable believing that the new fracking method might be as successful as PetroBakken has indicated. I saw these insider buys:
Mar 21/11
Mar 15/11
Lothian, E. Craig
Direct Ownership
Common Shares
10 - Acquisition in the public market
20,000
Mar 21/11
Mar 15/11
Lothian, E. Craig
Indirect Ownership
Common Shares
10 - Acquisition in the public market
25,000
Mar 21/11
Mar 15/11
Lothian, E. Craig
Indirect Ownership
Common Shares
10 - Acquisition in the public market
20,000
Mar 21/11
Mar 16/11
LaPrade, Rene
Direct Ownership
Common Shares
10 - Acquisition in the public market
450
$17.770
Mar 21/11
Mar 17/11
Scott, Peter D.
Direct Ownership
Common Shares
10 - Acquisition in the public market
4,000
$17.800
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
300
$18.300
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
100
$18.300
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
1,000
$18.300
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
500
$18.300
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
400
$18.290
All insider buying is good. The insider buying by Daniel Themig really caught my attention. Why? Because of what he does for a living. Here is his bio from the PetroBakken annual information circular:
Mr. Dan Themig serves as Director of PetroBakken Energy Ltd since October 1, 2009. Since September 2002, Mr. Themig has been the President of Packers Plus Energy Services headquartered in Calgary, Alberta, Canada. Mr. Themig has served in various engineering and technical positions in the U.S. and Canada and has been involved in advanced horizontal and multilateral projects worldwide.
That doesn’t quite do the significance of this justice. Packers Plus is the company that pioneered the fracking technology that made the Bakken in Southeast Saskatchewan economic. He knows better than anyone else the technology involved in fracking the Bakken.
Or in other words, if there was one guy that I would want to talk to about PetroBakken’s Bakken production so that I could get comfortable with it ... that guy would be Dan Themig. Fortunately for me he happens to be a director at Petrobakken and I don’t need to talk to him because the message being sent by him buying shares speaks much louder than words. Clearly he thinks at current prices PetroBakken, which is fully reliant on his technology, is a good buy.
PetroBakken has recently maintained that its exist rate production for 2011 will be between 46,000 and 49,000 barrels per day. That is roughly 15% growth from where they started the year. If they achieve that Mr. Themig is going to have a very nice return on his recent share purchases.
Disclosure: I am long PBEGF.PK, PBKEF.PK.
I always watch the insider transactions at companies that I have an interest in. I’m sure every equity investor does. There are many different reasons for insiders to sell shares. Income taxes. New home. Excessive lifestyle. But there is really only one reason for an insider to buy. And that is because he or she thinks that the shares of the company at which they have insider knowledge are attractive.
One company that I have an interest in through ownership of its parent company is Canadian light oil producer PetroBakken (PBKEF.PK).PetroBakken had a disappointing 2010 as oil production growth that was anticipated by shareholders failed to materialize.
And when shareholders are disappointed they vote by pushing the sell button with their fingers.PetroBakken, which was formed as a publicly traded company in late 2009 when the Canadian light oil operations of Petrobank (the parent) (PBEGF.PK) were merged with Tristar Oil and Gas, has had its share price decline from $35 in late 2009 to $18 today.
In my opinion there are three main reasons for the production disappointment:
1) Last year was an exceptionally wet year in Western Canada. I live out here and can verify that. Much of the acreage in Alberta that PetroBakken owns in the Cardium play was so wet that they couldn’t get the heavy equipment to their wells on a timely basis. This put them behind on the number of wells they expected to have completed and producing.
2) In 2010, PetroBakken made three acquisitions that totaled well over $1 billion as they entered the Cardium play. It takes a while to integrate one company, so trying to integrate three additional companies within six months of merging two other companies together (Tristar merger) does not lead to seemless operations initially.
3) PetroBakken had some disappointing production results in their Northern Bakken acreage where wells were declining faster than expected because of less than optimal results from their fracking methodology.
Reasons one and two don’t bother me. In fact I think temporary issues that cause some investors to overreact can be a great opportunity for value investors to buy shares on the cheap. Reason number three, though, is a legitimate problem that needs to be addressed by the company (if it can be).
According to PetroBakken they have addressed the problems they were having in the Northern Bakken by developing a new fracking technology. According to company CEO John Wright in the most recent conference call they had 15 Bakken wells on hold (drilled but not fracked) in late 2010. And that now that they have implemented the new methodology the results have been extremely encouraging. According to Wright the results have been so good that PetroBakken’s regional managers through the entire Bakken play now are using the new fracking method.
As an investor at this point all I can do is either believe that they have this problem licked or not believe them. You have to have some faith in management in this instance.
I’ve looked pretty closely at Mr. Wright as a CEO and I have to admit I am a big fan. I think he is very honest and very clearly believes in the concept of management being a steward for shareholders. He and his entire management team have the vast majority of their net worth invested alongside shareholders.
In 2001 he approached the then chairman and CEO of Petrobank (PetroBakken’s parent) about taking over the company and changing its business plan. When 10 years ago Wright took over, Petrobank was a natural gas producer with a market cap of $50 million. Now it is a light oil producer with a market cap of almost $5 billion when you include both Petrobank and its prior ownership in Petrominerales which was spun off at the end of 2010. You don’t do that with smoke and mirrors.
But I saw something yesterday which also helped me get more comfortable believing that the new fracking method might be as successful as PetroBakken has indicated. I saw these insider buys:
Mar 21/11
Mar 15/11
Lothian, E. Craig
Direct Ownership
Common Shares
10 - Acquisition in the public market
20,000
Mar 21/11
Mar 15/11
Lothian, E. Craig
Indirect Ownership
Common Shares
10 - Acquisition in the public market
25,000
Mar 21/11
Mar 15/11
Lothian, E. Craig
Indirect Ownership
Common Shares
10 - Acquisition in the public market
20,000
Mar 21/11
Mar 16/11
LaPrade, Rene
Direct Ownership
Common Shares
10 - Acquisition in the public market
450
$17.770
Mar 21/11
Mar 17/11
Scott, Peter D.
Direct Ownership
Common Shares
10 - Acquisition in the public market
4,000
$17.800
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
300
$18.300
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
100
$18.300
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
1,000
$18.300
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
500
$18.300
Mar 18/11
Mar 18/11
Themig, Daniel
Direct Ownership
Common Shares
10 - Acquisition in the public market
400
$18.290
All insider buying is good. The insider buying by Daniel Themig really caught my attention. Why? Because of what he does for a living. Here is his bio from the PetroBakken annual information circular:
Mr. Dan Themig serves as Director of PetroBakken Energy Ltd since October 1, 2009. Since September 2002, Mr. Themig has been the President of Packers Plus Energy Services headquartered in Calgary, Alberta, Canada. Mr. Themig has served in various engineering and technical positions in the U.S. and Canada and has been involved in advanced horizontal and multilateral projects worldwide.
That doesn’t quite do the significance of this justice. Packers Plus is the company that pioneered the fracking technology that made the Bakken in Southeast Saskatchewan economic. He knows better than anyone else the technology involved in fracking the Bakken.
Or in other words, if there was one guy that I would want to talk to about PetroBakken’s Bakken production so that I could get comfortable with it ... that guy would be Dan Themig. Fortunately for me he happens to be a director at Petrobakken and I don’t need to talk to him because the message being sent by him buying shares speaks much louder than words. Clearly he thinks at current prices PetroBakken, which is fully reliant on his technology, is a good buy.
PetroBakken has recently maintained that its exist rate production for 2011 will be between 46,000 and 49,000 barrels per day. That is roughly 15% growth from where they started the year. If they achieve that Mr. Themig is going to have a very nice return on his recent share purchases.
Disclosure: I am long PBEGF.PK, PBKEF.PK.