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Kerm et al/ Wolverine - the candle has been burning at both ends.... just had a look at WVE, I'm not an expert, just a cashflow focussed type of guy with some skepticism tossed in.
At first glance I'm not overly excited about Wolverine from purely a cash flow basis. As you know, my starting rule of thumb for buying oil/gas producers is the share's price/cash flow ration should be less than 3. If the co. has a great track history re: adding production and proven reserves then possibly the "rule of thumb" can be nudged up a notch.
In WVE I don't see a proven track record, I don't see great earnings potential for the Beatton River and Cecil Lake areas or I don't see how the co. can jump from just under BOEPD in June'96 to over 1200 BOEPD in "early 1997". Yes, I know a $6.1 mil capital program can "buy" some of the production but my current tho't (skeptic, remember) is that assets (reserves, etc.) are currently commanding a premium price - thank-you royalty & gas trust $...... Remember, I'm not an expert.
In Wolverine I do see a slick PR package (where did the cat go?), declining cash flow in the second quarter, high (relative to peers) operating costs and a couple of properties in NE B.C.
Often generalizations are dangerous but GENERALLY the NE part of B.C. (Beatton River, Cecil Lake) are too expensive for little (and often bigger) companies to operate. The planned horizontal drilling programs will be great for service co. revenues but expensive to complete. For the 2Q to date (06/96) WVE shows $0.04 cash flow/share ($0.01 in 2nd qtr.). Last time I looked WVE was $0.70/$0.75 bid/ask. For me (cash flow biased) I'd be looking for at least $0.20 CF/share for the next 4 qtrs. before I'd go on a WVE buying spree.
Will the increased cash flow happen? - who knows? If the company increases production to 1200 BOEPD in "early 1997" cash flow will increase. Will the company increase production to 1200 BOEPD that quickly - that's the question, I'm a skeptic but I didn't talk to the company to get a grasp of the plan - maybe there's more? Time'll tell. PERSONALLY I want to see more documented proof of inreased production, increased cash flow, decreased operating costs, increased netbacks and more discussion about the $6.1 mil. capital program (who's paying - equity/debt, etc.) before I'd consider buying shares.
Hope this helps - any critique welcomed............. Ops, fumble fingers again - up above I meant to say the indicated avg. production for 2Q completed was 250 BOEPD (the 250 was missing). Also, it should read "cash flow ratio" not ration. |
