kusari's Profile
kusari's Posts
Today’s news from Petro One Energy is simply outstanding, and I wanted to get a quick note off to my regular readers and followers. If you’ve been following my blog, you’ll see I have been a fan of this company for some time and have posted my thoughts on a regular basis. I had high expectations for POP’s exploration programs, and I have commented on the management team’s skill and past successes many times. But quite frankly, I am extremely impressed by the results from this first drill program, which has all the earmarks of a landmark discovery.
It’s time for me to let the highlights of this press release do the talking. The first hole of its first summer drill program has led to the discovery of a previously unknown light oil pool on the Company's 100% owned J5 property in Saskatchewan, Canada:
- This conventional vertical well demonstrated an excellent flow rate of 9.63 cubic metres (60.57 bbl) of light oil to surface in just 7.75 hours from the Viking sand at a depth of 736.5 m, without stimulation, swabbing or pumping.
- Flowing pressure in the tubing measured at surface was stable at 1,000 kPa throughout the flow period, indicating a reservoir of excellent quality.
- The well has been shut in pending installation of a separator and adequate tanks later this week, at which time it will be placed in full production.
- With oil flowing to surface on its own, and excellent reservoir pressures, a pump is not necessary.
- A final core analysis completed by Core Labs has confirmed excellent porosity up to 23.5% and unusually high permeability up to 3,980 mD over the perforated interval.
- This new oil pool is contained within an extensive Viking sand corridor on the J5 property indicated by the high-resolution seismic program shot by Petro One last spring.
- The excellent productivity of the 10A-15 well is explained by a highly porous and permeable basal channel facies that cuts across the main thick Viking sand fairway.
-
As a result of this significant discovery, an expanded exploration and development drilling program of up to 17 additional wells has been planned on J5 to exploit the full potential of this newly identified reservoir. -
"Petro One is to be congratulated on discovering such an outstanding quality reservoir sand on their very first exploratory well", said Harold Ryan, P.Geol., Geoscience Manager at Chapman Petroleum Engineering. "It is very rare to find an untapped reservoir in the Viking that has such excellent porosity and permeability and can be exploited by conventional drilling.”
It is extremely important to note that this discovery is only Petro One’s first well drilled, and they have 18 locations in total on J5 alone. And in case you missed it folks, this is an old-fashioned gusher—meaning oil is forcing its way out without the aid of a pump jack. The flow rate and reservoir pressures are so consistently good that it indicates a huge find in terms of size, quality, and robust, long-lasting economics. This is a light sweet WTI find – no fracking required!
This is the best Viking well I have ever seen, and unless someone can show me otherwise, I suggest this might be the best of its type in the history of Oil exploration of Southeastern Saskatchewan.
I need to be totally clear—reservoirs of this type produce the kind of results that major companies, such as Husky, Exxon, etc. hope to find and put into production (and often struggle to do so). Yes, these results really are that good and this first hole has the potential to be a company maker.
This is an excellent start for this fast-growing junior producer, and I expect it will forever change the face of this company and stimulate powerful players in the Oil business to come straight at POP with offers. They’re being tight lipped about the location of the discovery and have no doubt taken the necessary measures to stake up the best ground. A lot of investors were watching this stock, but now expect significant industry interest in all POP’s exploration and development activities.
Most importantly, Petro One has a number of targets undergoing active exploration at this time which I believe have equal or even greater potential than the barn-burning results we have seen from the first hole on J5.
In my estimation equal, Petro One has explored less than 1% of the overall economic potential of its existing grounds in Southeastern Saskatchewan and Manitoba.
In my last post on June 6, I concluded that it was imperative to investors to pick up POP at that time, before the stock ran away from the crowd.
Today, I take that back, but with good reason: A start, with results of this type has grossly exceeded my expectations. I mused that Petro One had all the characteristics of a winner, and it would finish strong. But today’s results are more than a fast start. They’ve achieved more on their first hole than most junior oil explorers and producers will achieve in a company’s lifespan.
This management team has done it before and is doing it once again. I am adding more right now. Petro One is a winner that is going all the way.
Petro One Energy (TSX-V: POP): My Valuation Methodology and Analysis of Market Action
A blog reader asked me earlier to explain the difference between my valuation methodology and what’s found in Petro One’s corporate presentation, so I thought my explanation might make a great blog update. I believe my numbers are quite conservative, while at the same time, presenting an extremely robust investment case for Petro One at its current price point.
Petro One’s corporate presentation follows a hyper-conservative approach which indicates a fundamental value of $1.08 / share, on a fully diluted basis.
However, their $16,900,000 USD value for the 1M BBL is so conservative it is almost silly. They have applied an 84% discount to the current price of WTI Oil.
Additionally, this figure ENTIRELY EXCLUDES the recent oil find, and prospectivity, for both the Oil and Gold assets etc.
Petro One’s super-conservative methodology mandates a massive discount to the value of their oil assets. In one sense, this is very good because it shows they are straight shooters. It seems they are trying to wow people with even the most minute aspects of the company, for example—even in terms of how conservative they are when they represent their numbers.
My calculations are more standard and give the oil a realistic value. I don’t count the hot new J5 discovery either, so my numbers, although dated, are still quite conservative.
I take 1M BBL and apply an average $90 BBL price (which is still nearly a $10 dollars discount to market) to arrive at a gross figure of $84M gross value. Next, I simply minus the highest average cost of production on per barrel basis, which is $15/BBL.
This gives me a net value for the oil assets of about $71M, at $90/BBL—without considering the new J5 Discovery.
When it comes to how I break down the Yukon numbers vs. how Petro One does it, I suppose they can be sliced and diced either way. I value them at what the current cash and GSR stock in the treasury is at current prices. Petro One’s corporate presentation includes the value of the whole Yukon deal over its lifespan. Either method is acceptable.
Petro One is seriously undervalued and they want the market to know it. When a company wants to show it is undervalued, it uses the most conservative possible methods. This way, sophisticated investors are truly impressed with the discount. When they first crafted these numbers, POP was trading in to 50-60 cent range, so it showed just how beyond undervalued the company was at that time. I expect they will soon revise their presentation to have much more robust numbers (!)
My numbers a few weeks ago suggested a FAIR market cap for the company was $86M dollars. At that time, POP had a $27M market cap, which was a 70% discount to my conservative valuation.
Now simply take my conservative $86M valuation and divide it by current shares and you get:
$86M / 47M shares out = $1.83 a share at my most reasonable, conservative valuation – weeks before this new J5 discovery (!)
If you want to keep it simple, the best way to look at it is like this:
Petro One’s numbers constitute a “beyond-rock-bottom” valuation for the stock that ENTIRELY excludes the new oil discovery, wipes away 84% of the value of their existing oil assets, and simply builds an investment case around the cash and shares it will have in the treasury from another company, GSR. The $1.08 figure they use is essentially break-up value and should be seen as nothing more than a worst-case scenario floor for the stock price.
My method gives them credit for the oil, cash and shares they have before the whiz-bang J5 Discovery. I apply conservative market prices, minus the highest average costs of production. My $86M valuation with a $1.83 share price is the conservative but fair value price.
Even by my conservative standards the stock should be bare-minimum $1.83, and if I were to give a good solid guess as to the impact of J5, I expect a fair value would range from $2.50 - $5 in the near term.
Realize it is in the nature of the nature of every good growing company to fight a see-saw stock price battle through the process of market recognition. I don’t know what the numbers will look like coming out of J5, but I expect they will be even better than first reported, which is why big industry players are weighing in. With this in mind, expect the stock to keep gapping up each morning as more sophisticated and institutional investors digest the hard data and go through the presentation and press releases.
Right now institutions and retail investors are slugging it out for a very small existing float. Consider the facts:
- Insiders own about 60% of the company and are NOT selling.
- The market has burned through nearly 10M shares in 3 days.
- 60% of 47M shares = 28M shares locked up with insiders.
28M + 10M shares = 38M shares in new strong hands at higher prices or locked up with management. - All warrants are in the money—loose shares have been and are being used to cover them. That’s where the selling came from, end of story.
- 47M – 38M = only 9 million shares loose in the market (!)
THE INSTITUTIONS AND PROS THAT WANT THIS DEAL KNOW THAT IN A FEW MORE DAYS THE MARKET WILL RUN OUT OF SHARES AND THEN THEY WILL BE OUT OF LUCK AND FORCED TO PAY MUCH HIGHER PRICES.
Institutions are smart and have significant resources at their disposal. Their traders will deliberately test the retail market to see if it will cough up inexpensive shares under pressure. Don’t let them herd you into selling cheap and triggering stop losses only to eat your shares later.
Think about it people: For every seller, there is a buyer. Do you really think the retail market is eating up 10+ million shares in a significant, multi-month correction, in the summer doldrums, while mom and pop are away on vacation? Get real! See the Anonymous and Jitney buying, or buying coming through large, bank-owned firms? These are institutions, hard at work.
These institutions devour stock (and untrained investors) and MUST have large positions to make any money in their portfolios. Here’s a heads-up: The bid will usually be strong in the morning, but they’ll let it drift or even deliberately soften the market during midday to test for weakness, and see if retail investors get spooked and bail out, or if stop losses kick in. Failing that, they will just sit and wait and see if retail jumps in the pool first.
When they see an opening, usually mid-market they will come in, in full force, like they did on the 12th and 13th. Then POP will run all the way to the end of the market as they soak up stock. These guys aren’t stupid, this is how they make money.
If you want to make money here, get the institutions buying behind you—not in front of you. They want to accumulate inexpensively and once it’s in their portfolio, you’ll see the manager on TV talking about POP in his portfolio. He’ll take your calls and make a case for you to own it in the market. Why? To bid up the value of his position and give him the liquidity he needs to get off some or all of his paper at a profit. He’ll get paid a hefty performance bonus on the alpha in his portfolio, and maybe even win an award. Why else do you think they all want to blab about their favorite picks? They need you, hungry retail buyers as their aftermarket.
Have you seen the markets? Not much is working right now for institutional, long-only resource fund managers. POP’s discovery is a dream come true for them and they need the paper if they want to look like heroes and have any chance of beating the market in Q3 and beyond.
Notice all the newsletter writers covering bunk deals that are going nowhere or down? You can bet they’re knocking on POP’s door right now trying to get the scoop and claim to be the first person to cover it and know it inside out. Do you want to be in front of the institutional investors and the newsletter marketing machine? Or would you prefer to buy it after they all get positioned, run the stock up to $5, and then they tell you what a great deal it is?
Retail folks, I hope you know that for a very limited time you are in the driver’s seat with this stock. Realize this is what is going on, and fearlessly buy. There will be fortunes made here for those who can get in on POP quickly, accumulate with audacity, and hang on tenaciously.
You all better quit pussyfooting around and get on that paper as quick and hard as you can, hold on tight, and force these two groups to come in behind you. The warrants are about washed through right now and there’s around 9 million shares left. Once we’re through that, any good news will jam the stock price higher—and shockingly so. The eyes of the professional resource investment community are on POP right now, and managers are hungry for any real deal that is working in this market.
My favorite quote is “Fortune favors the bold” so you know where I stand, and you can be damn sure I'm buying, going all-in, all the way.
James Hudson, AlphaFlight Portfolios Inc.
Picking a Winning Junior Oil Stock – Fundamental Analysis of Petro One Energy (TSX-V: POP)
Thursday June 23, 2011: World Oil news caused some market confusion today, but I suggest we look at it with great consideration and a critical mind.
Oil prices have softened to a 4-month low as the IEA released emergency Oil reserves for the 3rd time in history. The IEA is releasing 60 million barrels from Strategic Reserves around the world to help lower global Oil prices. In terms of fundamentals, this is inconsequential. 60 million barrels is approximately 18 hours of global production – not even a full day. Some traders were caught offside and liquidated due to emergency supply coming online. But when the dust settled, the implications of the IEA’s actions were decidedly bullish for Oil.
Over the past 30 years, the IEA has released emergency reserves only during the onset of Gulf War 1 and after Hurricane Katrina. Desperate times call for desperate measures and we saw that then and now.
There will be no ongoing material weakness in the price of Oil. This is not new supply coming on line. The IEA has simply shocked hedgers and traders by releasing emergency reserves to help hurting countries in a highly inflationary environment. The Saudis simply couldn’t bring it up quickly and cleanly enough to stave off Europe’s Oil starvation. This will come as no surprise to my blog readers as just a few days ago, on June 16, 2011, I posted information from the IEA Executive Director that the world was desperate for more Oil. Today’s anxious measures are not indicative of a price correction due to oversupply. It is really just a desperate move to retard the price of Oil.
My top pick, Petro One Energy (TSX:V – POP) faced some light selling as nervous investors took stock of the news. Luckily for me, I was able to get into the market during this time and accumulate on weakness. When the dust settled, most Oil companies had sold off, but Petro One was up a keen 13% to close at .68 cents on the day. Bargain hunting turned into outright buying as the market wised up to the IEA’s move and just how undervalued POP is. In fact, scared selling in the wider market turned to panic buying for Petro One.
Petro One’s aggregate Oil, across all properties, is nearly 1,000,000 BBL before they began drilling and exploration. The average cost of production in southwest Manitoba and southeast Saskatchewan is from $5-15 /BBL.
They have signed a production agreement with Chapman Petroleum Engineering. Chapman will not be paid unless Petro One produces Oil. All of Chapman’s work is 51-101 compliant. In fact, Chapman is one of the few firms in the country that can write up a 51-101.
Petro One’s Oil development program is run by Dr. Hairou Quing, Ph.D. McGill University (Dean's Honor List), 1991, who is the Geology Department Head at the University of Regina, who works with only two companies: Petro One and the state-run Chinese National Oil Company (CNOC).
On January 26, 2011 Petro One Energy (TSX-V:POP) closed at .38 cents. WTI Oil was trading around $90 / BBL, which is the same as it is today. At that time I wrote and published the post “Breaking down the math on Petro One Energy” which discussed their Yukon Gold deal with Goldstrike. I strongly recommended Petro One then, and my recommendation is even stronger now. In fact, I think this is the best buy on the market. Why? I add up the fundamental values from three key factors: Yukon Gold assets optioned to GSR, core-business Oil value, and lastly company share structure and business fundamentals.
On June 21, 2011 Petro One announced that Goldstrike (TSX-V: GSR) had begun exploring POP’s excellent Yukon Gold projects – as well as a number of their own. Goldstrike is cashed-up and requires no financing. Their program is being run by Trevor Bremner, who worked eight seasons in the Yukon with Archer Cathro (founders of ATAC Resources) and he served as Chief Geologist of the Yukon and as Yukon’s Acting Director of Mineral Resources.
Petro One’s two deals with GSR has allowed Petro One to divest itself of all risks and costs associated with exploring the Yukon Gold assets in exchange for shares in fully-funded, expertly-crewed GSR to do the work and make the following payments to Petro One’s bottom line:
Lucky Strike Claims 70% optioned to GSR:
- Petro One receives $500K cash, 2 million common shares of GSR on closing, 5 million common shares over 5 years, and 4 million warrants @ .25 more over a five year period.
BRC Claims 100% optioned to GSR:
- Petro one receives 2 million common shares of GSR and 3 million warrants @ .70 on closing, with another 1 million shares and 3 million warrants @ .70 in November 2012.
Most conservative total value of Yukon deal with GSR at today’s stock price:
= $9,300,000
Setting the $9.3M dollar current value aside, the sum total of these two transactions is $500K cash and 20 million shares of GSR at end of of the 5-year period.
Next, I look at Petro One’s pre-exploration Oil assets, which are:
- 214,000 BBL Light Sweet initial on Viking / J5
- 500,000 BBL Light Sweet initial on Frobisher-Alida / J1
- 228,000 BBL Light Sweet initial on Spearfish / J4
= 942,000 BBL Light Sweet
942,000 BBL * current WTI price $90 BBL = $84,780,000 Gross
- Conservative average cost of Light Sweet / BBL from vertical wells with no fracking in Saskatchewan and Manitoba = $15 / BBL
- 942,000 BBL * $15 = $14,130,000 Cost
$84,780,000 - $14,130,000 = $70,650,000 Net Value
Lastly, I look Petro One’s fiscal picture and share structure:
Finally, I add it all up to determine if the stock is undervalued:
- $5.5M current cash
- $9.3M current conservative valuation of Yukon Gold transactions
- $71M current conservative valuation of Sask / Manitoba Oil assets
= $86M value of all assets excluding share price growth or exploration potential
- $27M MCAP
= $59M undervalue difference between cash / assets and market cap.
POP is trading at 31% of the most conservative valuation of its cash and assets.
With this in mind, the stock chart over the last year has been technically perfect to the upside. Petro One’s share price has more than doubled, on strong volume against an overall weakening market, over the past year.
On June 6, 2011, Petro One announced it had begun drilling with an aim towards near-term light, sweet crude production. Folks, we are looking at textbook case of an emerging junior Oil producer doing all things right. I expect we will see significant cash flow sometime this year.
There is no question as to what direction Petro One’s share price is headed. It will simply be a case of how much production will come online, how fast, and how long the company will last before it is taken out.
Fundamental Investment Case Summary:
From top-down, supply and demand macro fundamentals, Petro One is perfectly positioned in both Oil and Gold bull markets. Geographically and politically, POP’s Oil assets are in the best jurisdictions with the most open ground, political stability, and lowest royalty policies in North America. All of their projects have year-round 2-wheel drive access, significant existing infrastructure, and are framed on multiple sides by long, strong cumulative producers within a few hundred meters. In terms of geological potential, POP’s Oil assets are in elephant country, surrounded by Halliburton and EOG.
At the same time, Petro One’s Yukon Gold claims, optioned to GSR are the closest claims to the Underworld / Kinross Golden Saddle discovery, with all the geological and structural earmarks of significant deposits, while also featuring better Gold in soil anomalies than those that overlaid Golden Saddle. Risks and costs associated with Yukon Gold exploration have been divested to the experts at GSR, who are well funded and already executing a significant exploration program.
On the corporate side, Petro One has now become a pure light sweet Oil production-focused junior with first-rate management and technical teams who have discovered and put into production numerous world-class Oil and Gold deposits. Petro One is run with a $7K a month all-in burn rate, has a tight share structure owned primarily by top institutions and insiders.
With regards to the stock, it has more than doubled in price against a sagging market, over the past year, and the technical indicators are near-perfect. This said, Petro One’s market cap is still grossly discounted to its most conservative fundamental value. Which, in my opinion is why the stock continues to rally on even the toughest market days.
This is my number one pick. Anyone who doesn’t own it ASAP does so at the peril of their portfolio!
Happy hunting,
James Hudson, AlphaFlight Portfolios Inc.
GER Market Cap: 20M Shares Out: 39 M (13M insiders) Lithium Res: 10 M @
1.04% Li2O Phosphate: 12km property (10x DAN's)
CLQ Market Cap: 176 M Shares Out: 252.5 M Lithium Res: 17 M tonnes @ 0.94%
Li2O Phosphate: NON
DAN Market Cap: 85 M Shares Out: 65 M Lithium Res: NON Phosphate: 300 M
tonnes
Glen Eagle, like Arianne, has a great future for anyone on looking to diversify.
GER Market Cap: 20M Shares Out: 39 M (13M insiders) Lithium Res: 10 M @
1.04% Li2O Phosphate: 12km property (10x DAN's)
CLQ Market Cap: 176 M Shares Out: 252.5 M Lithium Res: 17 M tonnes @ 0.94%
Li2O Phosphate: NON
DAN Market Cap: 85 M Shares Out: 65 M Lithium Res: NON Phosphate: 300 M
tonnes
GER Market Cap: 20M Shares Out: 39 M (13M insiders) Lithium Res: 10 M @
1.04% Li2O Phosphate: 12km property (10x DAN's)
CLQ Market Cap: 176 M Shares Out: 252.5 M Lithium Res: 17 M tonnes @ 0.94%
Li2O Phosphate: NON
DAN Market Cap: 85 M Shares Out: 65 M Lithium Res: NON Phosphate: 300 M
tonnes