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  • Primary Petroleum Unlocking Value with a"Major" Force

    Primary Petroleum (TSX.V: PIE, OTCQX: PETEF)

    Primary Petroleum is a Calgary based oil and gas exploration and production company focused on Montana. The company holds a significant prospective land position in the Alberta Basin Bakken Fairway in Western Montana and in the Northwest area of the Williston Basin in Eastern Montana.  Primary’s mandate is to partner with an industry expert to develop its prospects and sell the company by the end of 2012. Holding play economics constant and taking the lowest comparable peer valuation per acre, Primary Petroleum should be trading at $800/acre or $1.50/share. That implies 87.5% upside from today’s stock price.

    Capital Structure

     
      

    Price

    $0.80

    Shares Outstanding

    158.00

    Market Cap

    $126.40

    Debt

    $0.00

    Cash

    -$14.00

    EV

    $112.40

     

    Investment Highlights

    ·         The Largest Contiguous Alberta Bakken Company without a Joint Venture Partner. In aggregate, the company has approximately 290k gross acres at 100% working interest in the Alberta Bakken Fairway in Western Montana. Primary also owns 20k net acres in Eastern Montana, NW of Elm Coulee Field.

    A Joint Venture is Imminent: Primary Petroleum has entered into a non-binding LOI with a “Major U.S. Industry Partner on its southern Alberta Basin Bakken fairway lands in NW Montana”. “The completion of the transaction is subject to title and environmental due diligence and final documentation. It is expected to close on or before October 3rd 2011, when specific details of the formal agreement will be disclosed.”

     

    Why is this Important?

    ·         Mr. Marrandino (CEO) has stated that unconventional shale expertise is much desired

    o   A Major E&P company brings an extensive geological technical team that will be able to unlock the reservoir code

    ·         Mr. Marrandino has discussed a potential Joint Venture structure and had prior discussions with multiple private/public companies. Based on the structure of his Saturn JV as well as Bowood’s JV deal, we believe the Alberta Bakken Joint Venture will consist of an initial upfront payment plus an earn-in.

    ·         Deal will unlock the true value for contiguous acreage. Today land packages <2,000 acres are going for $350/acre. There aren’t any large land packages to the north of Primary’s land position. Companies will have to pay a large premium over public land sales to enter this play.

     

    ·         Over $500MM has spent to date on land, JV’s and exploration in Southern Alberta since 2010. Substantial sums of money have been committed to this emerging play. $230MM+ has been spent since April 2010 with land going for an average price of $820/acre. Reputable companies that have acreage positions in Western Montana & Southern Alberta include: (Western Montana) Rosetta Resources, Newfield/Stone Energy, Anschutz, Quicksilver, Abraxas, American Eagle Energy, (Southern Alberta) Crescent Point, Royal Dutch Shell, Murphy Oil, Nexen, DeeThree, Bowood, Argosy.

    ·         Southern Alberta Basin is Arguably Better than the Williston Basin

    o   Similarities

    §  Stratigraphically equivalent

    §  Hydrocarbon saturated in large continuous reservoir or petroleum system

    §  Close proximity to source rocks

    §  Low water saturation in the petroleum system

    §  Development and exploitation of the petroleum system requires horizontal drilling and fracking

    o   Differences

    §  Fairway consists of other multi-zone formations that are oil bearing (Sunburst, Madison and Nisku)

    §  Bottom seal is a massive anhydrite

    §  Kevin-Sunburst Dome, Sweetgrass & South Arch natural stratigraphic trapping mechanism

    §  Suitable drilling rigs are available – Alberta Bakken doesn’t need the high performance +1000 horsepower rigs to operate

    §  Bakken encountered at significantly shallower depths; not as over pressurized, costs less to drill/ft because of less wear and tear on rig equipment

    ·         Primary continues to Trade at a Significant Discount to Peers. Not only is Primary the largest net landholder, the company is trading at less than half of its closest peer.  Primary will further derisk its acreage position this year and next through a planned work program of shooting 3D and drilling horizontal and vertical wells. A joint venture partner is another catalyst towards a revaluation of the stock.  IF TRUE and the Western Montana Bakken is as good as the Williston Bakken, one could anticipate a takeout bid north of $4k/acre.

     Comparables

    Total Acres

    EV ($mm)

    EV/Acre

    Primary Petroleum

    290,000

    $112.40

    $388

    DeeThree

    250,000

    $195.68

    $783

    Bowood

    64,218

    $109.45

    $1,704

    Argosy

    54,035

    $84.86

    $1,570

    American Eagle

    36,182

    $31.22

    $863

     

     

    Comparable Companies:

    DeeThree is an emerging producing oil and gas company with the vast majority of their acreage, 220k located on the Canadian side of the Alberta Bakken Fairway. DeeThree has drilled 4 wells to the Alberta Bakken, and will be evaluating the production profiles of these wells before proceeding to their next round of drilling.

     

    Bowood Energy currently holds 100k net acres, all in the Canadian side of the Alberta Bakken. The company has found a joint venture partner with Legacy Oil and Gas. After Legacy’s ongoing commitment to drill 14 more horizontal wells is completed, Bowood will have farmed out a total of 50% of acreage and retain approximately 100 sections of land.

     

    Of Argosy’s acreage, approximately 30k is in the northern area of the Alberta Bakken. The company is also in the early stages of testing their acreage.

     

    American Eagle holds 21,210 net acres on the right portion of the Alberta Bakken, with the remainder of their acreage in the Williston Basin area.

     

    Land Acquisition Strategy: At a recent auction during the first week of April of 2011, PIE acquired 32k of the 45k for sale. All the properties acquired were contiguous to their existing properties.  Primary paid as little as $1.50/acre to as high as $390/acre for the southwestern portion of their previous land.  The land surrounding the Indian reservation was being sold in a range between $200-360 an acre.  More recent auctions have suggested $300/acre as the new average. However, it is virtually impossible to find large blocks of land (north of 5,000 acre blocks) for sale.

     

    Primary’s Outlook for the South Alberta Basin Prospect (290k net acres) 2011/12:

    ·         Complete Farmout and JOA Agreements with U.S. Major Industry Partner

    o   Primary is presently completing due diligence, anticipate closing on or before Oct. 3rd 2011

    ·         Outline, Permit, and shoot up to 100 sq mi 3D Seismic: CAPEX ~ $4.5 to $5.0 MM

    ·         Continue Land Acquisitions: CAPEX ~ $2.0 MM

    o   Primary will continue to acquire long term leases based on continued geological merit, including seismic

    ·         Vertical Drilling Testing Program: CAPEX ~ $6.0 MM

    o   Drill 6 vertical drill test wells through to the Nisku to evaluate the multiā€zone formations including: Sunburst, Madison, Lodgepole, Bakken, Three Forks and Nisku. (spud first well end of Sept. / early Oct. 2011 and drill the rest by year end)

    o   Log, core, analyze and test to better identify source rocks for horizontal program to exploit oil bearing formations over their acreage.

    Primary’s Outlook for the Saturn Prospect (20k net acres) Outlook 2011/12

    ·         Continue to seek an industry partner

    ·         Shoot a minimum of 15 sq. mi. of 3D Seismic

    ·         Drilling Program of 3 vertical wells to a depth of approximately 7500 ft

    ·         Prospective formations – Mission Canyon; McGowan & Bakken

    Industry News

    Rosetta has completed their initial vertical well drilling program on their Alberta Basin acreage, and plans a 7 horizontal well program. Their base case economic model, based off their 11 delineation wells drilled, is as follows:

     

    250 IP

    185,000 BOE EUR

    160-acre spacing

    $4M well costs

     

     

    Per Well Economics (OTC:BFIT)

    Pricing ($bbl WTI)

    85

    95

    ROR(%)

    21.3

    35.1

    NPV10% ($m)

    931

    1,926

    F/D ($/BOE)

    27.46

    27.46

     

    Newfield has also been active with their drilling program. During Newfield’s second quarter conference call, the company reported that it has drilled 7 verticals and 2 horizontals, with all wells encountering oil over a very large areal extent. Newfield also announced they would fracture 4 of their vertical wells.

     

    Primary Petroleum Catalysts

    ·         Closing of the JV agreement with the U.S. Major

    ·         Completion of  approx 135 sq. mil of 3D Seismic over their leases

    ·         Results from 6-7 well vertical drill program for the Lodgepole, Bakken and Three Forks, with secondary evaluation for the Sunburst, Madison and Nisku formations.

    ·         Inception of a multiple well HZ program based on the findings from the Vertical Well program

    ·         Evaluation and acquisitions of further prospective acreage positions inside and outside the AMI that will be in place with the U.S.

    ·         Potential Sale of Company in 2012

    Industry Related Catalysts

    ·         Reservoir and production data from NFX, ROSE and FXEN

    ·         HZ well results from the 7 HZ wells that ROSE has drilled and fracked

    ·         HZ well results from the 2-3 HZ new wells that NFX has drilled and fracked

    ·         Possible NFX production results from their two existing well in producing wells

    ·         Development program from NFX, ROSE and possibly FXEN on their next CAPEX drilling program

    ·         Fairways Exploration and & Production recently received their permit to drill the horizontal portion of a well 1 township west of Primary’s acreage, Primary is in talks to share geologic data

    ·         Further results from Bowood/Legacy, Deethree, Argosy

     

    Map of Primary’s Lands and Surrounding Area

    ·         Primary’s lands are in yellow

    ·         Rosetta and Newfield own land , both in pink, directly north of Primary’s land position
    http://img28.imageshack.us/img28/5848/pieacres.png

    Sep 26 12:58 PM | Link | 3 Comments
  • YNG Completes Foward Sale of Gold w/Deutsche Bank

    Yukon Nevada Gold is fully funded to winterize their plant and bring it back into production. YNG is trading at 1.5x 2013 EBITDA excluding one of three permited roasters in Nevada worth over $1.5bln. 

     

    VANCOUVER, Aug. 3, 2011 /PRNewswire/ - Yukon-Nevada Gold Corp. (TSX: YNG) (Frankfurt Xetra Exchange: NG6) (the "Company") is pleased to announce that it is currently negotiating a Forward Gold Purchase Agreement (the "Agreement") with Deutsche Bank AG, London Branch ("Deutsche Bank"), a leading global provider of financial solutions. Subject to satisfaction of all closing conditions and internal approval requirements (including Deutsche Bank's credit committee), Deutsche Bank will fund a US$120 million prepaid gold forward facility (the "Gold Facility") to Queenstake Resources USA, Inc.

    ("Queenstake"), a subsidiary of the Company.

    Aug 03 8:50 AM | Link | Comment!
  • The Golden Nugget

    Yukon-Nevada Gold (TSE:YNG or PK:YNGFF ): $.44/share on 5-13-2011

      

    Recommendation

    I recommend buying Yukon-Nevada Gold today as the company’s risk/reward profile is very compelling given. 1. Yukon-Nevada is an extremely cheap producer trading at $123/oz for the 3.8 million ounces at Jerritt Canyon and Ketza. 2. New drilling could add as much as 3 million ounces  to measured and indicated gold reserves by year end. 3. YNG is ramping production over the next four years to 160k oz, 290k oz, 430k oz, 840k oz from 2011 to 2014, respectively vs. 2010 production of 65k oz. 4. Cash cost per ounce of gold will be cut in half to approximately $500/oz in the next 12-18 months ultimately doubling cash flows on existing production.  5. YNG’s Jarrett Canyon roasting facility (one of only 3 in the state of Nevada) has a replacement value in excess of $1bln. The company’s massive production ramp, increasing reserves, and significant cash flows could push the share price north of $2.75/share within the next two years.

     Description

    YNG is a North American gold company focusing on exploration and developing assets located in Nevada, Yukon Territory and British Columbia. YNG’s principal asset is the Jarrett Canyon mine located in Nevada.

     Valuation

     At the moment, YNG trades at a significant discount to its peer group on the two principal evaluation tools used in the metal space. YNG trades at 1.7x my estimate of 2012 EBITDA vs. the gold company average of 10.2x. If YNG were to trade in line with their comp group, its share price would sextuple to roughly $2.75/share.   Moreover, on an enterprise value to ounce in the ground basis, YNG trades at $123/oz a 50% discount to the comp group average. Note the acquisition of Fronteer by Newmont (latest Nevada gold transaction) transacted at over 4x where Yukon-Nevada Gold trades today. However, what isn’t caught by the traditional $/oz of Au or cash flow models with gold companies is the $1bln roaster facility that YNG wholly owns. There are only 3 that exist within the region and due to new environmental laws, the probability of one being permitted and built today is slim to none. Large miners like Newmont and Barrick ship their low grade tonnage to YNG’s roaster today due to the significant constraints on roasting capacity in the region. YNG’s roaster makes it an attractive takeover target for the various different gold miners in Nevada.

      

    Production

    In 2010, Jerritt Canyon processed approximately 65k ounces from stockpiles, purchased ore, and mining operations. This year, the company plans to hit 160k ounces which is divided between 40k ounces of additional tons acquired from Newmont and increasing production on the underground portion of Jerritt Canyon.  However, 2012 is the turning point for Yukon-Nevada. They’re ramping production to 290k ounces/yr (81% YoY increase) while increasing cash flows to north of $275MM/yr at the current forward gold curve.  Put another way, the operating leverage on the business will decrease the cash cost by $500/oz on all production.

     


    Ketza River production is forecasted to come on line in 2013.  YNG will spend exploration capital to grow the open-ended resource to north of 1mm ounces.

     Resource and Reserves

    Today the company has approximately 3.2mm oz of Reserves & Resources at Jerritt Canyon and Ketza River has a Resources estimate of approximately .7mm oz. Reserves estimates were calculated off of a $580 gold price by Messrs and the NI 43-101 Technical Report was prepared by SRK Consulting on April 16, 2008.

     Jerritt Canyon

    Today Jerritt Canyon Reserves and Resources of 3.2mm only account for the gold that will be mined through the current mining operation.  By year end, Management has indicated that they plan on compiling the historic drilling data in addition to infill drilling  today’s uncalculated resource for an additional mine. They potentially have a resource similar in size if not larger than the 3.2mm sitting at the underground operation today.  Remodeling historical data with new infill drill results should double the size of the Jerritt Canyon gold deposit by year end. 

     

     

     Ketza

     

     

      Roasting Facility

    YNG owns one of three (Newmont and Barrick own the other two) roasting facilities in Nevada which is the only economic method of processing refractory sulfide ore in the region.  Due to environmental concerns, a new roaster has not been permitted in 12 years.  However, YNG has the only permitted and operational roaster with spare capacity and they have used this asset as an additional revenue stream for the company. The quantity of low cost refractory sulfide ore in Nevada coupled with only three roasters that can process the ore, make for grand opportunities in acquiring accretive assets ready for production or a natural takeover candidate for Newmont or Barrick. 

     Note: I’m happy to go into further detail on any of the topics discussed above



    Disclosure: I am long OTC:YNGFF.
    May 18 1:35 PM | Link | 2 Comments
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