Soros Buys 20% of BNK Petroleum

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Oct 19, 2010
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I have casually followed BNK Petroleum over the past couple of years. I has a well respected management team, a big European asset, and now a big time European investor.

The following was announced today:

“CALGARY - A fund managed by Soros Fund Management LLC has agreed to pay $66 million to buy about one-fifth of BNK Petroleum Ltd. (TSX: BKX.TO).

Quantum Partners LP will pay C$2.54 each for 26 million common shares of the Calgary-based company representing about 22 per cent of BNK's outstanding stock prior to the transaction and 19.5 per cent after the investment.

BNK said it will use proceeds from the private placement for its business, including work commitments on its European shale gas concessions.

The company's shares rose 16 cents or 6.5 per cent to $2.61 after a trading halt was lifted, following the announcement.

The Soros Fund was founded by George Soros , one of the world's best-known financiers, who remains chairman of its board.”

BNK has a giant headstart on European shale gas, the economics of which are very appealing given the very cheap land cost and the very cheap royalty arrangements.

Here is an article explaining where the company has come from and where it is going:

This company just became an independent entity in 2008, but nonetheless, it’s well positioned to achieve growth in the year ahead.

BNK Petroleum Inc. is a Camarillo, Calif.-based energy company focused on the acquisition, exploration, and production of large oil and gas reserves. With additional offices in Canada, The Netherlands, and Poland, and a network of subsidiary companies scattered across other European countries, the organization has built a strong international presence.

The organization began as a subsidiary of Bankers Petroleum Ltd., an oil and gas company with operations focused in Albania. It was spun-off in July 2008 and now operates independently. Wolf Regener, who serves as president and CEO, explained that the separation occurred because of a shift in overall strategy.

“After a new CEO took over at Bankers Petroleum, it was determined that the Albanian project was sizeable enough to sustain a large company on its own and would therefore be the primary focus from there on out. They stopped looking for heavy oil fields in other regions and wanted to do something with the existing operations they had in the US, where the projects had grown big enough to sustain their own company. BNK was created and took those over,” he said, noting that the project furthest along was one based out of Oklahoma producing from the Woodford Shale.

Although it has been less than two years since the split, BNK is flourishing and poised to grow in the years ahead. According to Regener, that growth will be driven through two primary channels: the current US operations and the European shale-gas market, which he expects to boom in the very near future.

Operating at home and abroad

The Oklahoma property is currently the largest producer in BNK’s portfolio (which consists of approximately 12,500 net acres), but its operation is complemented by properties in Alabama, Mississippi, Texas, New York, and Europe. The company has pursued the exploration and development of shale gas plays in the US for more than five years now, and according to Regener, he and his team are now looking to do the same in Europe, particularly in four basins where they have been granted concessions.

In the Tishomingo gas field in Oklahoma, BNK’s production comes from the Woodford shale, which produces oil, natural gas, and natural gas liquids. Although its three other Northern and Central US properties are not yet proven, they have the potential to add more value.

“From the start, an important part of our overall strategic objective has been to maximize the value of our US shale and tight gas assets. The second primary goal we set was to focus on acquiring large-acreage positions in Europe, targeting shale gas,” Regener explained.

However, when he and his team formed BNK, they knew right away that they didn’t want to settle for any limit that might stifle future growth. “When we formed BNK, we didn’t want to just be a $100 million to $200 million market cap company. From the start, we knew we wanted to have a place to go with other high-impact projects,” he explained. “Our chairman, Ford Nicholson, looked at a map one day and said, ‘Shale isn’t being done in other parts of the world, but it should exist everywhere—shouldn’t it?’ From that point forward, we’ve been working on securing prospective shale gas acreage in Europe.”

As a starting point, the team at BNK drew a line from Poland down to Turkey and made a conscious decision to pursue opportunities in European countries west of that boundary. The thought of creating an entirely new market might seem ambitious, but the team at BNK is confident in its abilities.

“In terms of energy consumption, Europe and the US are pretty close in size; the difference is that almost all of the European gas supply is brought in from outside,” Regener said, explaining why he and his team believe their strategy will prove successful.

Still, the team decided early on that it needed to get into at least four basins, in an effort to minimize potential risk. Throughout the last two years, they’ve looked at more than 25 basins in a total of nine countries, and as of 2010, their first goal has been reached: they’re currently in four basins. The first property where concessions were granted is located in Poland, and according to Regener, he and his team were met with a pleasant surprise.

“We were actually really surprised by how inexpensive the acreage was. In the US, unproven acreage costs between $100 to $200 per acre, and top-quality property can run all the way up to $30,000 per acre. Decent shale plays usually run at least $8,000. What we found is that in Europe, the most expensive acreage that we are pursuing was 55 cents per acre,” he said, noting that royalties are significantly lower too, averaging roughly half the rate of US properties.

“They want to see activity take place, so they don’t ask for much money up front,” Regener continued, adding that although the European shale-gas market is still in the development stages right now, he fully expects it to take off soon. And when it does, BNK will be well positioned, given the expertise its staff has acquired from years of experience in the US market and having a first-mover advantage over other companies.

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