₪ David Pescod's Late Edition November 26, 2007
PILOT ENERGY (V-PGY) $3.05 n/c
PETROBANK ENERGY (T-PBG) $52.51 -0.43
PEERLESS ENERGY (T-PRY.A) $5.16 -0.02
Natural gas prices are in the toilet, the Canadian dollar is way high and now with the higher Alberta Royalties, one wonders if there is any reason to be following Canadian based oil and gas stocks. Particularly now, that one of the most exciting plays in the Prairies (the Bakkens) seems to be all taken over by one major—Petrobank Energy. They announced a takeover of Peerless Energy on this past Friday and for a price that was almost where it was trading at.
We followed the Bakken Trend and mentioned it several times mainly because we were players in the Pilot Energy story. Not everyone is excited about the Peerless deal though, and one of the most articulate is probably Brian Kristjansen of Genuity Capital who writes, “1% Premium? Peerless Board lets down shareholders with premature sale to Petrobank.”
In his look at the deal, Kristjansen suggests, “Petrobank gets a bargain” and suggests that Peerless is selling out at $78,588 per flowing BOE/d. He suggests that “net of land value, the deal looks even worse as Peerless has over 100,000 net undeveloped acres of land, of which at least 11,520 is prospective for the Bakken.”
He also points out that “considering the on-tap production, it worsens—Peerless has six wells awaiting completion and two still drilling, and given recent activity, would have likely meant 5000 BOE/d of corporate production in one month’s time.”
Kristjansen suggests that “based on our valuation of the deal, we believe that a competing offer is likely and that shareholders should not be tendering their shares at this time.”
One way or another, one of the more interesting plays left in Western Canada now looks like it may be gone. Until it looks like there is a future for natural gas, one is probably going to have to pick up a few Atlas’s, hopefully for Christmas so they have better perspectives of where the North Sea is, areas of offshore and onshore Thailand, maps of Bolivia, Columbia, Argentina and the like. As the plays with high profile, some chance of success, and more importantly the chance of reward if you find something, seem to be much more offshore these days than home, courtesy of Premier Stelmach’s tax grab.
NOVAGOLD RES. (T-NG) $9.31 -10.65
TECK COMINCO (T-TCK.B) $35.60 -1.89
NovaGold Resources and Teck Cominco were partners in building what was going to be one of the world’s biggest copper/gold/silver mines with their Galore Creek operation in northwestern B.C. and it was going to be big. Make that really big!
The problem about building it in Canada and in particular, the far northern regions is that it’s an expensive place to work and now with the Canadian dollar going through the roof….
Today the two companies announce that they will be suspending construction activities, just to show you how those northern construction costs and the loonie are working against manufacturers, oil producers and miners in Canada. Today they announce that “a recent review and completion of the first season of construction indicate substantially higher capital costs and a longer construction schedule for the project. This, combined with reduced operating margins as a result of the stronger Canadian dollar, would make the project, as now conceived and permitted, uneconomic at current consensus long-term metal prices.”
The suggestion was that costs on building the mine could now approach as much as $5 billion, should they proceed...and that’s an enormous figure. It looks like they are going to continue to look at the project and see if they can’t find a cheaper way to do it. But in the meantime, this is a real blow to the Canadian mining and other industries that are getting hit with the higher value of the Loonie.
Meanwhile, you wouldn’t be surprised to see the chart of NovaGold get hit, but of more interest is the chart of Teck Cominco that shows you one of the world’s bigger natural resource companies has not had a lot of fun in the last few months and has actually had quite a correction as some commodities (particularly copper) have had a rather significant sell off because of talk of a recession in the United States.
WESTERN KELTIC MINES (V-WKM) $0.415 +0.11
Another example of tough times in the Canadian mining industry is Western Keltic Mines, whose Kutcho project in Northern B.C. was rather rich, but also being located in northern B.C., would be an expensive one to build. Also affected by the Canadian dollar, had trouble attracting market attention and was just in the middle of offering another 100 million shares that would have brought it close to 200 million shares outstanding. Instead it looks like management has decided to sell themselves and Sherwood Copper will be the new owner, should shareholders decide to go along with it.
Not quite the way most people had envisioned this story ending, but once again, a reminder of the economics particularly in the Canadian North.
INTRINSYC SOFTWARE (T-ICS) $0.91 +0.04
BANKERS PETROLEUM (T-BNK) $0.91 +0.05
TIMMINCO LTD. (T-TIM) $13.30 +0.68
It’s another day like many we’ve seen over the last few months in the markets—the Dow Jones is down quite a bit, Toronto is down, the Venture Index is particularly hard hit, gold is down and oil is down. And the screen looks remarkably red.
But there were a few things green and at least three of them come courtesy of Peter Hodson. Hodson is currently the Senior Portfolio Manager with Sprott Asset Management, one of the hottest funds around and Hodson is also (because he’s called some pretty good plays correctly) in very high demand on shows like Business News Network. (To see today’s show, go to www.bnn.ca and watch past videos. Monday, Market Call at 12:30 PM ET).
His three picks today were Intrinsyc Software, Bankers Petroleum which we hope to follow quite closely over the next year or two because of the success of Rally Energy (RAL), which was run by Abby Badwi. Badwi is still over in Albania checking out their heavy oil project and hopefully when he comes back shortly, we will have a better idea of what he’s got himself into. So much for that idea of retirement!
As a third pick, Hodson goes with Timminco, the company involved with the production of silicon. Ironically, some of Canaccord’s analysts have two of those as some of their top picks as well and if you would like to receive a background report on Bankers Petroleum by Peter Misek or Intrinsyc Software by Rafi Khouri, simply e-mail Debbie at Debbie_lewis@canaccord.com.
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