Big players grab stakes in tiny Arcan
Analysts say stock market moves unusual
Juniorproducer Arcan Resources Ltd. says gaining a second large intermediate oil producer as a shareholder proves the value of its light oil play in the Swan Hills area of northwestern Alberta.
Earlier this week, PetroBakken Energy Ltd. confirmed it had quietly acquired a 17-percent stake in the company on the stock market.
That makes it the secondlargest shareholder behind Crescent Point Energy Corp., which announced a 19per-cent stake in July 2011.
The stock market moves are unusual, analysts agreed, especially given Arcan’s willingness to let other companies farm-in on its extensive inventory of drilling locations in the Beaverhill Lake play.
“A significant portion of the stock is now held, not by regular investors, but by actual producing companies,” said analyst Geoff Ready, who covers Arcan for Haywood Securities of Calgary.
“I think it describes the difference of how companies are valued. The market is valuing companies on near-term production and cash flow and the other companies are looking at what their overall land and opportunity value is.”
Another analyst who asked not to be identified characterized the Arcan stock buys as “difficult to understand” on the part of either purchaser.
Arcan has been a bargain of late, with its shares closing Tuesday at $1.20, down from a 52week high of $6.24 set last February.
PetroBakken said it paid just 89 cents each for seven million of the 17 million shares it recently picked up. Last year, Crescent Point said it paid $5.08 for eight million of its current stake of about 19 million.
Analyst Jeremy Kaliel of CIBC World Markets said in a note he counts the deal as a positive for PetroBakken, adding it positions the larger company if it decides to make a bid for Arcan.
We view the announcement as a slight positive … JEREMY KALIEL,
ANALYST
“We view the announcement as a slight positive due to our positive bias to the play and the attractive entry price for PetroBakken,” he wrote.
“If PBN were to acquire Arcan at a 30 per cent premium, PBN’s debt would remain manageable ... and with 49 per cent of its credit line undrawn.”
He added that if Crescent Point makes an offer for Arcan, PetroBakken would still likely profit because it paid so little for the shares.
Arcan reported recently that third-quarter production was 3,900 barrels of oil equivalent per day, down from 5,250 boe/d in the second quarter. The boom and bust numbers are common — its unconventional wells typically post flush initial production followed by steep declines.
Ready said the high cost of being a player in the deep Beaverhill Lake play, where horizontal, multi-stage fractured wells cost upwards of $4.5 million each, makes it very difficult for Arcan to go it alone.
He said the company is also saddled with high debt, a key factor in its spiralling share price.
Arcan said in its news release it doesn’t plan to make any changes to its operations because of the PetroBakken investment.
A spokesman did not immediately return a request for comment.
Arcan and PetroBakken also announced a farm-in deal under which PetroBakken will earn up to a 50 per cent stake in 5,570 hectares of Arcan land by drilling five commitment wells and two option wells.
In its release, PetroBakken says it now has 20,000 net hectares of land in the play with 175 potential drilling locations identified. It reported it has drilled one well and participated in a partner’s well, and plans to drill up to seven more wells by March 31.
Crescent Point, meanwhile, said recently it is planning its first waterflood enhanced recovery pilot in the Beaverhill Lake play and said it has been undertaking unspecified consolidation acquisitions there.
In its five-year plan, it says it plans to double output to 6,500 boe/d from 3,000 boe/d now. PetroBakken had overall thirdquarter production of 38,500 boe/d, while Crescent Point noted 99,600 boe/d. Both are active in the Saskatchewan Bakken light oil play.
Beaverhill Lake is an oil reef play first discovered in the 1950s and originally tapped with vertical wells. New technologies have reopened the play.