In April 2018, Mackie Research Capital featured an article on Streetwise Reports that commented on the
disconnect between the strong recovery in the price of oil and lack of
response by most energy stocks. With valuations near unprecedented lows,
Mackie highlighted oil and gas stocks that are fundamentally undervalued and
well positioned for when valuations revert to the norm. Two of Mackie top
picks that have multi-bagger return potential from the current levels have
recently announced exciting updates that could unlock substantial additional
upside for investors.
On July 30, 2018, Prairie Provident Resources Inc. (PPR:TSX) announced a
very positive drilling update at its Princess core area, with two new wells
each producing at ~900 boe/d and a third exploration well testing ~770 boe/d.
These are boomer wells which are on track for three-month payouts making them
of some of the best performing non-resource oil producing wells in Alberta.
In addition, PPR has a potential significant cash windfall coming from a
Quebec settlement that positions the stock for a rerate.
Point
Loma Resources Ltd. (PLX:TSX) announced on July 25, 2018,two exciting new
Banff oil pool opportunities, captured on company lands, that are on trend
with other significant Banff oil pools that hold an average of 62 million
barrels (mmbbls)of original oil in place (OOIP). PLX expects to drill a
horizontal well targeting its Banff opportunities in Q4/18 that could be a
game-changer for the company while also having a sizeable stake in the
Duvernay Shale oil play that continues to evolve in PLX's area of operations.
Both PPR and PLX have a large inventory of low cost Mannville drilling
locations that form the bases for years of low risk steady growth production,
and both companies have upcoming near-term events that could be
transformational and game-changers for the stocks.
PRAIRIE PROVIDENT RESOURCES INC. – PPR - TSX
PPR is focused on the development of its conventional oil weighted assets
in the Wheatland and Princess properties in Southern Alberta and its Evi area
located in the Peace River Arch area of Northern Alberta. PPR also holds
~240,000 net acres in the St. Lawrence Lowland of Quebec that are prospective
for the Utica Shale. The company remains highly undervalued on a cash flow,
reserves and NAV basis and receives no option value for its Quebec assets. In
addition, with the recent drilling success at its Princess core area,
production has increased to over 6,000 bbl/d (~75% liquids).
Three Boomer wells at Princess: Year to date, PPR has drilled a
total of five wells in the Princess area, all successful. The three most
recently drilled wells are boomers, which are on track for three-month
payouts. The 100/13-24-20-11W4 well ("13-24") continues to exceed
expectations with an average rate 940 boe/d (75% liquids) in July. The 13-24
well is one of best performing non-resource oil producing wells in Alberta.
The 102/13-26-20-11W4 follow-up well was recently placed on production at a
constrained rate of 900 boe/d (85% liquids) and we expect this too will be
one of the best non-resource oil wells in Alberta. PPR also drilled the
103/14-12-019-11W4 exploration well targeting a new Glauconite channel, which
flow tested at an initial rate of 770 boe/d (56% liquids) and was very
recently placed on production. PPR has multiple follow up locations to drill,
which could build production prior to year-end.
Potential Cash Windfall from Quebec Settlement Could Rerate the Stock: PPR
is seeking damages of US$188.9 million related to the termination of the
rights to one of the company's licences in Quebec. The final hearing
concluded in November 2017 and a ruling in the dispute and potential damages
could be announced in H2/18. Over a five-year period PPR committed a
significant amount of time and capital to securing the exploration licences,
acquiring and interpreting seismic and drilling wells. We feel damages of
between US$25 million to US$60 million would certainly be in the realm of
possibility. Damages at the low end of this range would allow the company
accelerate growth through drilling or acquisitions, and could re-rate the stock.
POINT LOMA RESOURCES LTD – PLX – TSX-V
PLX is highly undervalued (trades well below its 1P reserves value with
the value of the company backstopped by its Mannville producing assets alone)
and has a large concentrated land base (over 250 net sections) and deep
multi-zoned drilling inventory to fuel growth. Production has recently
increased to over 1,000 boe/d with an additional ~200 boe/d expected in
Q4/18, from low risk well reactivations. In addition, during the second half
of 2018, PLX plans to drill two to three high impact horizontal wells,
including an exciting new Banff Oil play that has significant multi-bagger
upside for the company as a standalone new play.
Two Potentially Large Banff Oil Opportunities with Big Upside:
Based upon the new 3D seismic data and combined with bypassed pay and oil
shows in company owned wells, PLX identified two well-defined, Banff oil
pools that are on trend with other significant Banff oil pools in the area.
Five offsetting Banff pools have large OOIP ranging from 22 to 91 mmbbls of
oil, with an average in place resource of 62 mmbbls. Most of the offsetting
Banff pools were discovered many years ago and have been exploited primarily
with vertical wells, utilizing outdated technology.
Based upon OOIP resource of between 25 to 75 mmbbls, we calculated a mean
potential net value of $40.0 million ($0.66/sh) per Banff oil poolwith an
upside case of $135 million ($2.24/sh) per Banff oil pool. In Q4/18, PLX
plans to utilize the latest proven technology to drill a horizontal well
targeting its Banff oil opportunities. The opportunities are located near to
the company's Paddle River production facilities, which should allow quick
on-stream time. Success would be a significant game-changer for the stock,
which trades at the $0.28/share level currently, with investors able to get
in today far below management and the company's strategic insiders, which
have an average cost base of $0.55/share.
Free Option Upside from its 12,500 net acres in the Duvernay Shale Oil
Play: PLX has established ~12,500 acres (~20 net sections) of land within
the Duvernay oil shale window. Industry interest in the Duvernay has been
heightened by impressive initial oil weighted production tests results from
the likes of Artis Exploration (Private), Vesta Energy (Private) and Crescent
Point. As a result, land prices continue to escalate in the oil window of the
Duvernay. As the Duvernay shale play continues to evolve, we believe that PLX
lands holdings provide significant optionality to farmout, swap or even
outright sell the acreage. There is no value for the Duvernay oil shale play
reflected in the current stock price, which we consider a free options for
investors.
Bill Newman is vice president of international and
domestic oil and gas research with Mackie Research Capital Corp. He has been
an energy analyst for 22 years. He holds a bachelor's degree in commerce from
the University of Calgary, and has a CFA designation.
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Disclosure:
1) Bill Newman: I, or members of my immediate household or family, own shares
of the following companies mentioned in this article: None. I personally am,
or members of my immediate household or family are, paid by the following
companies mentioned in this article: None. My company has a financial
relationship with the following companies mentioned in this article: Within
the last two years, Mackie Research Capital has managed or comanaged an
offering of securities for, and received compensation for investment banking
and related services from Prairie Provident Resources Inc. and Point Loma
Resources Ltd. Bill Newman has research coverage on the following companies
mentioned in this article. Prairie Provident Resources Inc. and Point Loma
Resources Ltd. Relevant disclosures required under applicable to companies
under coverage discussed in this article are available on our web site at
www.mackieresearch.com. I was not paid by Streetwise Reports for writing this
article. I determined which companies would be included in this article based
on my research and understanding of the sector.
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