Seeking Alpha
Profile| Send Message|
( followers)  

The Great White North is a land of mythic grandeur and living phenomena. The existence of a plethora of unique species there underscores the Darwinian notion of existing within one's habitat, as evidenced by the bowhead whale, the red-throated loon, and the truly rare two-for-one Bakken oil and gas producer.

Twin Butte Energy, Ltd. (OTCPK:TBTEF) is a Canadian Energy producer in the northern Bakken region with a focus on heavy oil production, and is committed to developing its infrastructure in this proven field, replicating the successful techniques implemented in its production process, and continuing to take advantage of the scalar opportunity achieved by developing their infrastructure. The tale of Twin Butte is a story of regularity, and comes with an impressive 11.23% dividend, which provides a value driven investor an opportunity to achieve a great income with an entry-priced and potentially under-valued stock. The underlying commodities Twin Butte produces, oil and natural gas, are seeing upwards near-term pressure, and with the relative weakness of the US dollar, will potentially see lucrative upside in the upcoming months.

The Federal Reserve has recently announced the continuation of its bond-buying program, which has sparked a decrease in the valuation of the dollar that will be priced in for the present. The BLS has recently released revised June and July and new August jobs data, and with this influx of soft jobs numbers trickling through the economy, the continuation of liquidity from the American government in its current 85 billion per month increments should endure in the near term, as a step-back from the current asset re-purchasing program seems unlikely. This means that Canadian goods and services will continue to be sold at a premium to their American counterparts on this continuing weakness. Fed Chairman Ben Bernanke has historically shown himself to be biased against allowing inflationary pressure to creep into the CPI, but with energy not being incorporated into the traditional inflation measures, the fires of economics expansion are positioned to remain stoked longer than previously estimated.

How a Congressional Stalemate Means Victory for Twin Butte

Concerns over the US government shutdown that has come into being have caused an almost 1.5% drop in the contracted future price of oil, showing a lack of confidence in the American economy in the face of government stalemate; the silver lining associated with this information is found in the drastically reduced volume in the futures market. A plethora of pundits have universally opined that a shutdown will not transpire, and the lack of futures volume indicates that the markets have decided to not open contracts until the dust has settled. The loss of almost 20% of the contract volume mitigates demand side push in the market, and could be a large contributor to the weakening futures prices.

In this climate, political machinations and maneuverings are immaterial to the buying decision, as the beaten down, and under-valued Twin Butte Energy is sitting pretty either way. A government shut-down across the US border doesn't adversely impact the firm since a Canadian economy will be forced to pick up the production slack in the short run, and subsequently, U.S. equities markets have all been strongly up in almost every sector, while commodities have been pummeled; interestingly, even the energy and mining sectors seem to be on the rise. Either way, it appears there will be an influx of available liquidity for investors, and US dollars to inflate the value of Twin Butte's product.

The Twin Pillars of Income

The aspect of Twin Butte that swings it from being a low to medium risk investment decision to an outright buy is the prospect of its 11% or greater dividend, a dividend which is built into the corporate model. The current valuation of the firm at 264 million (my own estimate) and the Q2 33.1m net revenue indicates that the market has severely undervalued the firm based on its productivity issues in Q1 and early Q2. There's no way to know how long this Congressional impasse will endure, nor production conditions in the Canadian Bakken this winter, but either way, TBTEF.PK is a relatively safe bet with a great monthly paycheck attached to stock ownership, and has a potential for a nice upside surprise if the US economy manages to avoid deepening, or even recover handily from (see slide 6), the political quagmire in which it's now embroiled.

Source: Twin Butte Energy Comes Back, Shutdown Or No