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DeeThree Exploration's Surprise Reorganization Gives New Investors A Gift

Apr. 15, 2015 8:32 AM ETGranite Oil Corp. (GXOCF)19 Comments


  • DeeThree Exploration has best-in-class oil assets for a small cap Canadian oil producer.
  • Company's recent decision to split into two separate public entities has surprised current shareholders.
  • Shareholders waiting for final resolution provide opportunity.

Value investors thrive on seeing equity pricing errors that often originate from emotional reactions that all investors have. One common emotional condition a stock can be in is a sentiment washout, where shareholders become exhausted by the prolonged drops in a stock, say one caught in a negative macro trend (for example my last article on RMP energy). But another condition that I look for is a personal favorite. That is a shareholder base that becomes confused about where things are heading due to some kind of material change in the story. The natural reaction in the short term to confusion is almost always sell at least parts of a position and worry about value later. But if you can cut through that short term murkiness, you can receive a discount on assets based on nothing more than people's feelings. I believe that DeeThree Exploration (OTCQX:DTHRF) is one such company. In fact, I would argue its caught in the middle of both of the above conditions, which may make it even more interesting.

DeeThree is a highly regarded light oil company that operates two major projects both located in the Western Canadian Sedimentary Basin in Alberta. Over the past years its oil output has increased nicely and several well timed equity sales over those same years have allowed the company to maintain an excellent balance sheet. Its successful property development thus far should put it in the position to maintain is 2014 exit production for the duration of 2015 with a dramatically shrunken capital budget, therefore avoiding any additional stress on the balance sheet or poorly timed equity sales. A very good summary of the company's prospects (albeit with some oil prices out of date now) can be found here. If you can't see that Seeking Alpha Pro article let

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Volte-Face Investments represents the writings of an independent investment manager who managed a long/short equity fund. The author worked for a major Wall Street firm for 12 years before leaving to start his own business in 2009. Since then he has been pursuing investment management full time. The purpose of the articles is to explain the thinking with regards to a particular investment opportunity and to provide readers with a foundation from which they can begin their own due diligence. Volte-Face Investment's writings are not solicitations to transact any security. For further information or consulting, please contact via direct message or direct message on twitter @voltefaceinvest

Analyst’s Disclosure: The author is long DTHRF. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

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