₪ David Pescod's Late Edition June 21, 2006
CANDAX ENERGY (T-CAX) $0.80 +0.04
“Nothing is easy in this life” John Clarke tells us and I
guess you can’t disagree with that statement, particularly
concerning what John Clarke has gone through in the last
while. For two years he was Canada’s top ranked oil and
gas analyst and then he decides to chuck that comfortable
life and actually go into the oil and gas business himself as
an active participant instead of critiquing others.
So far Candax Energy, the company he is now the Executive
Vice President of, has had a tough time with ongoing
delays on their potentially massive Chaal project offshore
Tunisia. Now there is more mixed news. According to reports,
the company has had several operational issues to
overcome, which included the replacement of the blow-out
preventer and as a result, very high weight mud was used
according to Haywood analyst Fred Kozak to control the
inflow of reservoir fluids that remained in the well bore for
an extended period and impeded the testing program.
While the well was sitting idle, there was probably seepage
of drilling fluids into the formation, resulting in some
formation damage and the testing of this very significant
well is, as of this date, incomplete.
When we talked to John Clarke today, he suggests it
could be two to six weeks before they get coiled tubing
equipment from either Egypt or Algeria to resume the testing
and then an indefinite period before they could have
some significant results.
There are two analysts that follow this story. Fred Kozak
at Haywood, who with this new development has revised
his target to $1.15, a reduction from the original $1.25
and he points out, “We still believe that the current valuation
of Candax is more than supported by the company’s
remaining assets and cash flow prospects.” He continues,
“Without Chaal, Candax has a basic NAV of $0.88 per
share.
Canaccord’s Terry Peters moves his target to a speculative
buy on the company with a target of $1.08, down from
$1.33. Peters writes, “Our new target represents the NAV
for Candax based on its year-end reserves, the redevelopment
of El Bibane and the probable reserves at Chaal.” He
also points out that “Candax has a strong cash position of
approximately $70 million or $48 million net.”
For the bullish case, Clarke tells, “The company is currently
trading at a 30% discount to FDNAV of $1.05, and by year end,
we should be producing 3000 bopd and 4.5 mmcd/d gas for an
annualized cash flow of some 30 cents per share. Plus, the upside
with Chaal is intact for possibility of commercial COS, and
we still have secondary recovery at Ezzaouia and the deep Triassic
prospects in the back pocket.”
Meanwhile, we ask him to put on his analyst cap from the
days when life was so much less hectic. He suggests that if he
had to guess, by Christmas he could see oil at $64.00 U.S. and
he significantly suggests gas could be up to $10 U.S. by that
time. He points to the big change in the relationship between
oil and gas prices, which is usually gas trading at 1/6 the value
(meaning today, with oil at $70.00, gas should be closer to
$11.00) but because of lots of supply in inventory right now, the
result is low prices and he figures sooner or later, that changes.
When we ask him what would he buy if he could only buy
one stock other than his own in this market, he suggests he
would go conservative and with something gassy and picks
Peyto Energy Trust Units (PEY.UN-T).
AURELIAN RESOURCES (V-ARU) $21.60 -1.10
CORRIENTE RESOURCES (T-CTQ) $ 4.80 +0.24
Every time you have a speculative cycle in commodities, everyone
is able to raise money and go out there and search for the
next big story and only a handful come up with something
good. So far the results out of Aurelian Resources have been
nothing less than spectacular and if we could think of a word
stronger than spectacular, we would use it. Today, yet more
results as hole 58 returns 255 meters grading 12.5 grams per
tonne. Unbelievable lengths and the kind of grades that you
dream about. Canaccord analyst Graeme Currie does a write
up on them today and writes, “The massive property holdings
now cover a region over 70 kilometers in length and almost
surround at the northern end the Mirador copper deposit held
by Corriente Resources.” We suspect that when Corriente (with a
very significant copper project of their own) start examining
some of their other territories close to this discovery, they too
might have a pleasant surprise. Either way, we feature Corriente
in a couple of days because their copper project is approaching
some significant dates shortly. Meanwhile, in the
report Currie wrote up today, he gives ARU a target of $29.50.
For copies, e-mail Sandra at sandra_wicks@canaccord.com.
Disclosures: Candax Energy, Aurelian Resources & Corriente Resources: Canaccord Capital covers these stocks and has a Speculative Buy
rating on them. (Speculative buy: Stocks bear significantly higher risk that typically cannot be valued by normal fundamental criteria. Investments in
the stock may result in material loss.) Canaccord has recently led a financing for Candax Energy and Corriente Resources. Canaccord has recently
participated in a financing for Aurelian Resources. |
