Petrobakken, which focuses on the Bakken and Cardium plays, is a good value in its own right -- priced at roughly half its risked Net Asset Value.
|Penn West (PWE)||7.3%||$33|
But Petrobank is an even better bargain than Petrobakken, since each of its shares owns 1.1 shares of Petrobakken, yet trades at a substantial discount.
Since the earlier article was published, both Petrobakken and Petrobank have risen sharply. As expected, the price spread has narrowed from nearly $1.50 to about $0.50.
Petrobank has now announced a "Normal Course Issuer Bid (NCIB)," which is a quaint Canadian expression for a share buyback. Under the NCIB, Petrobank will buy back up to 7,784,304 shares, or about 10% of the company. Petrobank will finance the purchase by selling an equivalent number of Petrobakken shares.
The net effect of the NCIB is that each Petrobank nets $.50 in cash for each share, PLUS each remaining Petrobank share ends up with a bigger stake in Petrobakken. As the earlier article discussed, a Petrobank share is worth roughly $3 more than a Petrobakken share. So we expect Petrobank to continue repurchasing its own shares and liquidating Petrobakken shares until the share prices reflect this reality.