Hi Jim,
I would guess that the reason that RCP is moving up is because it's a pretty low risk way to bet on Turner Valley.
My take on the matter is this:
RCP has production and cash flow. Their other projects, in all probability, will just about triple their production in 1998. As their production expands so will their cash flow. Currently, as bbruin said in an earlier post, cash flow is about $0.15/share. So at $0.70 RCP is trading at between 4 or 5 times cash flow. If RCP does achieve it's goal of exiting 1998 producing 2000 BOE/day and cash flow increases to say $0.40/share, then as RCP exits 1998, even if it's only trading at only 2 times cash flow, the stock should still be worth about $0.80 minimum this time next year.
What all this means, in my opinion, is that even if Turner Valley turns out to be a bust, RCP should still be worth more, twelve months down the road, than it is today. So basically by owning RCP you get to place a bet on Turner Valley without having to worry too much, that if things don't work out the way we hope, the stock will gap down to $0.15 and stay there forever.
Personnally, I like both BEA and RCP.
I like BEA because it's almost a pure play on Turner Valley. If anyone hits then BEA should go up the most because of their land position. But if the Valley turns out to be a bust it will also suffer the most, in my opinion.
I like RCP because at current prices I feel my downside is limited due to their other projects, if I'm willing to hold for 12 months. You won't get near the upside as BEA if anyone hits in Turner Valley, but the downside should be limited.
For me, a ratio of owning 4 RCP shares for every 1 BEA share seemed about right. My idea was that RCP should go up at least 25%, based only on their other projects, in the next 12 months. This would about make up for any losses that I suffered on BEA if Turner Valley is a bust.
And on the upside, well the sky's the limit, I guess. With this ratio I won't make as much money as playing BEA only. But on the other hand, I want to make sure that I limit my potential losses as much as possible.
Maybe others are thinking along these lines too? Cannacord has certainly been buying lots of RCP since Feb. 5
Just my two cents
Dave |
