In a previous article, I wrote about Petrobank (PBEGF.PK), a Canadian company that owns shares of the exploration and production company, Petrobakken (PBKEF.PK).
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.
| Company | Yield | Operating Netback |
|---|---|---|
| Petrobakken | 6.6% | $53 |
| Penn West (PWE) | 7.3% | $33 |
| Pengrowth (PGH) | 7.0% | $29 |
| Baytex (BTE) | 5.5% | $37 |
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.
(Click to enlarge)
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.
Disclosure: I am long PBEGF.PK. I am also short Petrobakken.
