If you were watching Bankers Petroleum Ltd. (BNKJF.PK) (or BNK on the TSE), you're probably wondering "what the flying flamingos happened?" Bankers closed Friday (Feb 10) at $5.30, and closed Tuesday (Feb 14) at $4.70. It was quite the drop, and if you have been following my blog you'll know I had said that there was a reserve update on Monday and I believed that it would act as a catalyst to the upside. This article will go over the reserve update and why the market sold Bankers.
First things first, here is the link to the report. Proved reserves increased 43% year over year to 173 million barrels, proved and probable (2P reserves) increased by 12% to 267 million barrels of oil. Sounds pretty good, right? Well it is, the reserve growth was at the high end of most analysts' estimates.
So what then was the problem?
The cost of the wells increased and the number of wells needed to extract the oil increased from 624 wells to 910 wells. This increased capital costs from $1.2 to $1.9 billion. This also reduces the present value calculation that most analysts use to come up with their 12 month price targets.
Bankers also gave a production update which was below analysts' and investors' expectations. Their average production for January was 14,220 boe/day. This was well below their exit production of 16,048 boe/day they reached 8 days after year end. The 14,220 is on track for a 5-7% production growth quarter over quarter, which is what management had targeted.
So are higher cost and slightly less production worth selling for? Heck no! On this dip I was buying more. The Net Asset Value is still well north of $9 a share and that's just on 2P reserves, if you look at 3P reserves you're looking at over $13 a share in net asset value. For long term investors this is a golden entry point. And the longer that Bankers stays in this range, the more likely they'll be taken over. The reserves are there - a bigger company may come in buy them out and get the production ramped up themselves.
Disclosure: I hold a long position TSE:BNK.