Here's what you need to know about Long Run Exploration.
Type: Common stock
Symbols: LRE, WFREF
Exchanges: TSX, Pink Sheets
Current Price: C$4.99, US$4.48
Dividend: $0.42 a year
Yield: 8.42%
Entry Level: Current price.
Risk Rating: Moderate risk
Recommended by: Tom Slee
Website: www.longrunexploration.com
The business: An Alberta based intermediate oil and gas company, Long Run Exploration was formed in October 2012 through the merger of West Free Energy Ltd. and Guide Exploration Ltd. It has since assembled a portfolio of assets in the Cardium, Viking, and Montney regions of Alberta and is expected to produce approximately 32,000 boe/d (barrels of oil equivalent per day) in 2014, weighted 51% oil and 49% gas. Long Run has more than 1.8 million acres of land, a large inventory of development opportunities, and $1.3 billion in available tax pools.
Sprott Resource Corp owns a 15% stake in the company and market capital exceeds $1.1 billion. Management is committed to a yield plus moderate growth model.
The security: I recommend the common shares of the stock, which trade on the TSX and on the over-the-counter Pink Sheets in the U.S. The current book value is C$5.02.
Why we like it: This relatively new company is already reporting production and cash flows that are ahead of expectations however its shares remain cheap vis-á-vis other dividend paying exploration companies.
In June production and reserves were boosted by the acquisition of Crocotta Energy for $357 million and Long Run increased its drilling inventory by 300 locations.
The company is capable of generating a predictable, growing cash flow and more than capable of supporting shareholder distributions and common share growth. Acquisitions and possible exploration strikes are a plus. Meanwhile, the current $0.42 dividend provides an attractive 8.42% yield.
Financial highlights: Second quarter cash flow of $0.54 a share was ahead of the $0.51 analysts were expecting. As a result, the company is on track to report a $2.20 cash flow per share this year compared to $1.83 in 2013. We could see $2.35 or more in 2015.
Risks: Oil prices are volatile and subject to weather and geopolitical concerns. At the moment, however, energy prices remain relatively stable and Long Run is not exposed to any foreign operations.
Distribution policy: Monthly dividend payments of $0.035 per share are being made.
Tax implications: The dividends are taxable when shares are held in a non-registered account but eligible for the dividend tax credit. Any profit or loss on sale of the shares is treated as a capital gain or loss at the time, unless the shares are in a registered account.
Who it's for: These securities are suitable for investors seeking income and growth who are capable of assuming some risk.
How to buy: These are listed securities that you can buy on the TSX through any broker. For U.S. readers, the good news is that they trade fairly actively on the Pink Sheets with an average daily volume of 33,500.
Summing up: These shares offer an unusual combination of well above average income and growth potential mainly because institutions are waiting for a track record to develop. I think this is an opportunity to beat the crowd. My initial target is $7.00.
