I was very pleased to see an article in Barron’s today that details the undervaluation of shares of Petrobank (tse.pbg).
I had written previously a couple about the company which I think is very well run and also extremely undervalued as well as one of its investments (Petrobakken) which is also very attractive.. Here are the articles:
http://www.gurufocus.com/news.php?id=104988
http://www.gurufocus.com/news.php?id=103978
The Barron’s analysis was pretty similar to what I had detailed, and why wouldn’t it be it is really quite a simple company to value.
My quick recap would be this:
1) At the current stock price of $38 Petrobank investors are paying for the market value of Petrobank’s equity interest in two publicly traded subsidiaries Petrobakken and Petrominerales
2) That means you pay nothing for 670 million barrels of reserves held by the parent itself which have a PV10 value of more than $30 per share
3) You also pay nothing for Petrobank’s patented THAI technology which could itself prove to be worth more than any other part of the company
4) The subsidiaries themselves are considerably undervalued
A couple of excerpts from Barron’s that I found on a message board:
“THAT MEANS THAT INVESTORS get 670 million barrels of reserves in petroleum sands for free, as well as the technology that Petrobank contends is a cheaper and more environmentally friendly way to extract oil from heavy, dirty tar sands. Says Kent Croft, manager of the Croft Value Fund: "This is an exciting undiscovered story. The sands are being valued at cents per recoverable barrel, while previous transactions are about a 1.60. I think the stock is worth at least 70." “
Regarding THAI:
“Petrobank maintains that the process produces 70% to 80% of the recoverable oil, versus 20% to 50% for other methods, while using much less water and natural gas.
Petrobank claims that its technology produces 50% lower greenhouse-gas emission than other methodologies do, because the partially upgraded oil requires less refining, and the project's surface footprint is much smaller.
Several state-owned producers are interested in licensing the technology. "We
have confidentiality agreements with the Chinese, Venezuelans, Ecuadorians and Brazilians for agreements to apply our technology to oil and gas properties and we make a deal to share," Wright adds. “
And spin outs in the future to unlock value:
“Sometime in the next year, assuming that overall stock prices perk up, Wright intends to spin out the Petrominerales and PetroBakken stakes, to focus on the value in Petrobank's remaining assets—technology and oil sands. “
I own shares in Petrobank as well as Petrobakken. Petrobank along with several Gulf of Mexico producers is at the top of my list for any new equity investments right now.
Some detail on the Gulf of Mexico producers can be found right here: http://www.gurufocus.com/news.php?id=107405
