Sharon Energy (SHY.V) -- I have a huge position in this company, I believe they are on the verge of making it big. They just announced a huge stock offering at a modest discount to the market, plus 50% warrant coverage. If I could participate I would be all over this PP. Why Americans can't invest in Canadian PP's even though Canadians can invest in US PPs is beyond me. Kinda sounds like "restraint of trade".
Sharon has a great play going in the Wilcox formation in south Texas. The south Texas Wilcox play has turned out to be one of the few recent plays in the Lower 48 that has actually come close to realizing all of its initial hype -- a massive amount of gas has been found in this formation in the last 20 years. One of the big benefits of this play, especially as it relates to small undercapitalized E&P companies, is that there are usually several potential pay zones stacked on top of each other. So this allows a company, once it first makes a discovery in one of the shallower, less risky zones, to drill a little deeper on the wells offsetting that discovery, taking a shot at the riskier deeper zones while knowing all the while that that they will more than likely still make a well out of the shallower zones in any event.
The company has recently put out a great presentation on their web site, see sharonenergy.com . As shown there, by April (i.e. around the time the shares in this PP become free-trading) Sharon expects to be producing at quadruple the amount they produced last quarter. This projection does not assume any exploration success, the primary driver of this growth is one development well in their Allen Ranch field, which is about 2 weeks from hitting TD, and a development well in their Hound Dog field, which will be spudded by the same rig that is drilling at Allen Ranch and should get into production by April.
A pretty sharp oil & gas guy in Calgary named Bob Lamond owns (directly & indirectly) about 38% of this company. As a strong indication that he feels that the stock is still not overvalued even though its price has quintupled in the past year, he is buying 40% of the current offering, so as to maintain (or actually slightly increase) his % ownership in the company.
Its hard to disagree with Bob's assessment of the stock's valuation, its trading at only 3 x current cash flow even though its cash flow is expected to increase dramatically over the next year. |
