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April 27th, 2015

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editorials

 
Innovation and Efficiency Drive U.S. Oil Supply and Demand
Frank Holmes  Apr 01  

Oil Market Update
Clive Maund  Mar 29  

Still Another Update on Oil
Ferdinand E. Banks  Mar 24  

Oil Market Update
Clive Maund  Feb 24  

A Daily Energy Economics Dozen
Ferdinand E. Banks  Feb 18  

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expert analysis & newsletter briefs

Manitok Energy Inc.

"Our favorite at the moment continues to be Manitok Energy Inc. (MEI:TSX), a 5,000 5 Mbbl/d producer with all its assets in Alberta. The company is one of the cheapest we can find in the space. It's trading at about two times EV:EBITDA versus the group, which is trading at about seven times EV:EBITDA. We believe the company has a long runway of growth ahead because it has established a foothold in an area of Alberta called Entice, which it bought from Encana Corp. Some initial results have been excellent. . .the company was a CA$3/share stock last fall, but pressure from falling energy prices and tie-in deliverable issues at both Stolberg, its original core area, and Entice, have held the stock down. One tie-in issue was related to Husky Energy facilities that Manitok delivers into, and the other was related to similar Encana facilities, where the condensate content overwhelmed the facility. The company has made discoveries, but the market doesn't like a company that has production glitches. I think the market is being myopic, and production should be in line in a month or so. The market is also concerned about the higher royalty rates Manitok pays PrairieSky Royalty for the Entice production, and the capital spending obligations it has this year and next. But PrairieSky is aware of this issue and, hopefully, there can be a meeting of the minds to alleviate any concern.

With the Canadian dollar having gone from par to about CA$1.22 now on the U.S. dollar, the value of Manitok today is in the CA$2.50/share range, but could easily rise to CA$4/share or substantially higher with higher oil prices. As drilling at Entice continues, production and reserve additions should rise significantly over the next couple of years, offering compelling upside potential. . .to date, Manitok has been using the Cenovus Energy Inc. analog, which is about 25 kilometers away, meaning Cenovus wells that look similar to the Entice wells. But the Entice results to date have been well above that analog. Soon, Manitok will have had its Entice wells on for a five-month period. In another month or so we'll be getting results on those and, hopefully, we'll see a different royalty rate structure for the company too. And costs are coming down across the board in the sector, so the cost per each well should be lower, leading to 20–25% internal rates of return on drilling. With all of that meshed together, even at $50/bbl oil, this company will look appetizing. The market should be more relaxed about the company's debt level, which is about 1.5x EBITDA versus the peer average above 2x. . .the bigger catalyst here is seeing what the well results are, and getting the facilities issues locked down. Hopefully, Manitok will be viewed as a diamond in the rough." (4/23/15) - The Energy Report with Randall Abramson

Manitok Energy Inc.

"Our favorite at the moment continues to be Manitok Energy Inc. (MEI:TSX), a 5,000 5 Mbbl/d producer with all its assets in Alberta. The company is one of the cheapest we can find in the space. It's trading at about two times EV:EBITDA versus the group, which is trading at about seven times EV:EBITDA. We believe the company has a long runway of growth ahead because it has established a foothold in an area of Alberta called Entice, which it bought from Encana Corp. Some initial results have been excellent. . .the company was a CA$3/share stock last fall, but pressure from falling energy prices and tie-in deliverable issues at both Stolberg, its original core area, and Entice, have held the stock down. One tie-in issue was related to Husky Energy facilities that Manitok delivers into, and the other was related to similar Encana facilities, where the condensate content overwhelmed the facility. The company has made discoveries, but the market doesn't like a company that has production glitches. I think the market is being myopic, and production should be in line in a month or so. The market is also concerned about the higher royalty rates Manitok pays PrairieSky Royalty for the Entice production, and the capital spending obligations it has this year and next. But PrairieSky is aware of this issue and, hopefully, there can be a meeting of the minds to alleviate any concern.

With the Canadian dollar having gone from par to about CA$1.22 now on the U.S. dollar, the value of Manitok today is in the CA$2.50/share range, but could easily rise to CA$4/share or substantially higher with higher oil prices. As drilling at Entice continues, production and reserve additions should rise significantly over the next couple of years, offering compelling upside potential. . .to date, Manitok has been using the Cenovus Energy Inc. analog, which is about 25 kilometers away, meaning Cenovus wells that look similar to the Entice wells. But the Entice results to date have been well above that analog. Soon, Manitok will have had its Entice wells on for a five-month period. In another month or so we'll be getting results on those and, hopefully, we'll see a different royalty rate structure for the company too. And costs are coming down across the board in the sector, so the cost per each well should be lower, leading to 20–25% internal rates of return on drilling. With all of that meshed together, even at $50/bbl oil, this company will look appetizing. The market should be more relaxed about the company's debt level, which is about 1.5x EBITDA versus the peer average above 2x. . .the bigger catalyst here is seeing what the well results are, and getting the facilities issues locked down. Hopefully, Manitok will be viewed as a diamond in the rough." (4/23/15) - The Energy Report with Randall Abramson

Hemisphere Energy Corp.

"Hemisphere Energy Corp. will continue to be conservative this year given a depressed commodity price environment. Drilling has been deferred until H2/15. . .the company will focus on debt reduction in order to increase financial flexibility and position itself for potential accretive acquisitions, while seeking low-risk development opportunities. . .Hemisphere is still operating to our expectations and continues to generate positive cash flow as a result of low operating costs. We maintain a Buy recommendation and a CA$1.00 per share 12-month target price on its stock." (4/22/15) - David Ricciardi, Mackie Research Capital

Madalena Energy Inc.

"Despite production being impacted by third-party facility shutdowns in Canada and a contraction in its Canadian credit facility, Madalena Energy Inc. has made positive advancements and is well positioned to continue advancing four high-impact, scalable plays in Argentina. Most notably, Madalena and partner Pluspetrol (45% working interest) were successful in obtaining an official decree to extend the evaluation phase of Coiron Amargo Sur, the heart of the Vaca Muerta unconventional shale play, where we believe land values alone could yield net asset value addition multiples above current Madalena share prices." (4/20/15) - Michael Charlton, Industrial Alliance Securities

Blackbird Energy Inc.

"Blackbird Energy Inc. recently drilled two horizontal wells targeting the Upper and Middle Montney, both of which confirmed liquids-rich gas production capability on early test results. Both wells. . .tested over 145 bbl/MMcf of liquids-rich gas, and pressure data confirms an overpressured regime. . .the company is surrounded by industry leading players. . .and has assembled an extensive land position at a very low cost. . .we are relaxed about supporting a current value of approximately CA$180 (CA$0.46 per share) for this land alone. . .4 wells per section provides Blackbird the potential for. . .over 500 MMBoe liquids-rich reserves." (4/20/15) - John Clarke, Octagon Capital Corporation


featured companies

Jericho Oil Corporation (TSX-V:JCO)
Exploration of legacy basins across North America
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Quantum Energy (QEGY.PK:OTC)
Development stage publicly traded diversified holding company with an emphasis in oil field development trading
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The Energy Report ()
Investment ideas for saavy investors
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from the publisher
  Robert J. Moriarty

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April 27th, 2015

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