Pace Oil (PACEF.PK) has a 15,000 boepd production with 51% oil that grows consistently every quarter. It has low risk huge land with an extent of 800,000 net acres that consists of the hot Peace River Arch area (Slave Point formation), the Southern Alberta (Glauconite and the emerging Pekisko formation), the Northwest Alberta (the promising Pekisko formation again) and the Deep Basin. Pekisko formation is one of the best formations in North America oil plays with the highest investment rates of return.
To give you also an idea about the high oil productivity of the Red Earth area, you need to check Pinecrest Energy (PNCGF.PK) that operates there and it produces 99% oil and liquids. As a result, Pinecrest Energy trades at 100,000 $/boepd. Second Wave Petroleum (SCSZF.PK) is another oil company (90% oil and liquids) that operates in the area with a 90,000 $/boepd current valuation.
The Peace River Arch area is located in Northern Alberta adjacent to the British Columbia border. It enjoys an impressive geologic diversity rewarding energy companies with prolific oil and natural gas production. It is one of the most desirable light oil and natural gas liquids drilling areas in North America due to long reserve lives and wells that can produce for up to 15 to 20 years. The area is highly competitive and it is dominated by key players including Birchcliff Energy Ltd. (BIREF.PK), Crescent Point Energy Corp. (CSCTF.PK), Canadian Natural Resources Limited (CNQ), Penn West Petroleum (PWE) and Shell (RDS.A) among others. Production is established from various stacked pay zones that are both conventional and unconventional. Conventional plays include Charlie Lake, Leduc, Gething and Bluesky while unconventional shale/tight resource plays include Duvernay, Nordegg, Winterburn, Montney and Cadomin formations. The Peace River Arch also provides a significant amount of all-season access that allows companies to drill, equip and tie-in wells on an almost continuous basis, excluding the spring breakup period.
Pace Oil has also one of the lowest finding costs in conjunction with one of the strongest oil additions in the industry according to the latest presentation at the corporate website.
Pace Oil trades at less than twice the annualized funds from operations which is estimated to be about $80 million for 2012.
With a current enterprise value of $340 million and a 15000 boepd production (51% oil and liquids), Pace Oil trades as low as 23,000 $/boepd. Price to book value is also as low as 0.3 while the net asset value stands as high as $16.
Thanks to the consistently increasing oil results and its oil reserves, the credit facility was increased despite the huge drop in natural gas price in the first quarter 2012 that affected negatively the credit lines of the majority of the energy companies. So the current facility was increased 9% in June 2012, bringing the total available at $300 million. The increase in the company's credit facility reflects the high quality of Pace's reserve base with 63% of its reserves value being proved developed producing (83% oil weighted) and 77% of its reserves value being proven (82% oil weighted). The increase provides the company with greater financial flexibility to develop its assets in the future. Pace next semi-annual borrowing base review is scheduled for Dec. 15, 2012.
The low natural gas price in first quarter 2012, the correction in the oil price in second quarter 2012, along with a leak in second quarter 2012, drove the pps at a very low level which is not justified by any of the fundamentals above. Most investors "sold first and asked later" when the initial leak showed up. However, the final assessment proved that the leak was just one day's oil production. Not to mention that the damage was fully insured too. So the issue was closed without any material or minor impact on the financial health of the company.
The well known BlackRock owns 10% of Pace Oil and this is one of their biggest percentage stakes in an energy company. So this is another sign of confidence. The management team has a lot of experience in the industry as they have spent most of the career working for several majors like Encana (ECA) and Provident Energy (PVE.TO).
Taking into account that EV = Market cap + Bank debt + convertible notes - Cash and (15 MMcfe/d= 2500 boepd), EOG Resources (EOG) which has almost as much oil as Pace Oil trades at about 80,000 $/boepd. Some may say that EOG Resources gets a premium thanks to the fact that it is a major producer. Although this premium is huge and disproportionate to the production difference, let's see some other energy companies which do not have as much oil as Pace Oil. Several of them are juniors and they have less production in boepd than Pace Oil. Despite this, all of these companies trade at a much higher valuation both on a per $/boepd basis and on a market cap/FFO basis than Pace Oil.
Celtic Exploration (CEXJF.PK) with 24% oil and liquids trades at about 100,000 $/boepd.
Peyto Exploration (PEYUF.PK) with 10% oil and liquids trades at about 70,000 $/boepd.
Magnum Hunter Resources (MHR) with 35% oil and liquids trades at about 70,000 $/boepd.
Forest Oil (FST) with 32% oil and liquids trades at about 50,000 $/boepd.
Contango Oil (MCF) with 25% oil and liquids trades at about 55,000 $/boepd.
Birchcliff Energy with 25% oil and liquids trades at about 50,000 $/boepd.
Yoho Resources (YOHOF.PK) with 25% oil and liquids trades at about 40,000 $/boepd.
Cubic Energy (QBC) with less than 10% oil and liquids and negative stockholder equity trades at about 45,000 $/boepd.
Tamarack Valley Energy (TNEYD.PK) with 32% oil and liquids trades at about 45,000 $/boepd.
Dundee Energy (EUGFF.PK) with 29% oil and liquids trades at about 45,000 $/boepd.
Quicksilver Resources (KWK) with 20% oil and liquids trades at about 45,000 $/boepd.
EXCO Resources (XCO) with less than 10% oil and liquids trades at about 40,000 $/boepd.
Gastar Exploration (GST) with 20% oil and liquids trades at about 32,000 $/boepd.
Sonde Resources (SOQ) with 30% oil and liquids trades at about 35,000 $/boepd.
Lone Pine Resources (LPR) with 29% oil and liquids trades at about 35,000 $/boepd.
Advantage Oil (AAV) with only 6% oil and liquids trades at about 35,000 $/boepd.
Anderson Energy (AXLFF.PK) with 35% oil and liquids trades at about 35,000 $/boepd.
Cequence Energy (CEQXF.PK) with 15% oil and liquids trades at about 30,000 $/boepd.
Fairborne Energy (FAIRF.PK) with 19% oil and liquids trades at about 30,000 $/boepd.
Delphi Energy (DPGYF.PK) with 27% oil and liquids trades at about 30,000 $/boepd.
Double Eagle Petroleum (DBLE) with only 7% oil and liquids trades at about 30,000 $/boepd.
Geomet (GMET) with less than 10% oil and liquids and negative stockholder equity trades at about 30,000 $/boepd.
On top of that, Progress Energy Resources (PRQNF.PK) with only 16% oil and liquids was sold to Petronas for 110,000 $/boepd!!!
This is why I believe that Waldron Energy (ttygf.pk]TTYGF.PK ) with 28% oil at 17,000 $/boepd current valuation is also grossly undervalued but I shall analyze Waldron Energy (WDN.TO) in another article.
The recent acquisition of Nexen (nxy]NXY ) by the giant CNOOC (ceo]CEO ) and the acquisition of Progress Energy Resources by the giant Petronas are the two latest examples which show that the Canadian energy companies are the main acquisition targets instead of the US peers due to the fact they combine great land with low valuations. The Montney land of Progress Energy is adjacent to the Montney land of the obscure Terra Energy (TT.TO) for instance. Terra Energy (ttrhf.pk]TTRHF.PK )
has a market cap as low as $35 million currently and I believe Terra Energy is another acquisition target. We will talk about it in another article.