See also:
What does the sale of Daylight Energy tell us about the value of Petrobakken?
What does the sale of Brigham Exploration tells us about the value of Petrobakken?
Reflexions on Petrobakken (Updated)
Petrobakken has sold 7% of their Bakken business unit to Crescent Point for $427 million. Their press release says:
The Bakken Business Unit will continue to represent a significant portion of our corporate asset base as this sale represents only 7% of the Business Unit’s land holdings and approximately 12% of its production. Assuming successful completion of this Transaction, our average working interest in our remaining Bakken Business Unit lands will increase from 82% to 86% and we will continue to have over 700 net drilling locations in the Business Unit, representing approximately 10 years of drilling inventory.
In the past two years, Crescent Point has received market love. Its managers are hailed as brilliant and it is consistently able to raise money in the form of new issues. Petrobakken and Petrobank, however, have struggled to get the same kind of love. As a result, Petrobakken/Petrobank has been the better deal for value investors–whereas there seems to be a premium on the shares of CPG compared to industry peers, Petrobakken is still selling at a deep discount to value.
The implied value of Petrobakken’s Bakken Unit
If 7% of the Bakken Business Unit sells for $427 million, the implied value of the remaining unit is: $5.673 billion (427 = .07b; b=6,100 whole bakken unit; remaining Bakken = 6,100-427= 5,673). Petrobakken’s total market capital is currently $2.5 billion. This means that the current market price of Petrobakken sells at a 50% discount to the Bakken business unit alone. Don’t take my word for it. Take the value that the industry’s smartest managers, Crescent Point, have just given to the 7% that they bought. Crescent Point has just done a great favor to Petrobakken by showing that its stock is worth closer to $30 per share (not counting remaining debt and the value of its other holdings, including its Cardium, which I would argue is much more than zero dollars per share).
Disclosure: I am long PBN, PBG and CPG.
The Righteous Investor 
Congrats on the come back in PBN, the company did the right thing and improved its financial health. I think the shares still have a comfortable upside! Gotta love the oil weighting 🙂
Well, I’m not quite sure how far I have to go to break even, so hold off on the congrats for now. But it is a relief to see some of these companies recovering; for me, it is esp. nice to see Petrobakken and Trioil make some recent gains.
Another way to look at it is to value the remaining production, rather than the land, since they are in the oil business. So if you do this, then the value is approximately 3.56 billion (i.e., 427/.12). Selling a smaller property is generally going to generate more dollars per square foot than selling the farm so speak. So although I agree the implied value from the sale is good for PBN shareholders, it’s a stretch to come close to your suggestion that the market price represents about a 50% discount. Cheers Brian
Brian, thanks for the comment. I thought about posting it as function of 12% vs. 7%. That is another way of looking at the problem to be sure. But I am assuming (though without justification) that the other lands are less productive only because they are less developed–I would have had to do a lot more research to find an answer to that question. I was just trying to put something up quickly.
For the valuation, however, I might point out that I completely ignore everything else except the Bakken business unit. So here is another suggestion by Devon Shire which takes into account the entire business’s production and comes up with $34 /share implied valuation:
http://seekingalpha.com/article/387231-petrobakken-still-considerably-undervalued
Thanks for your response. I think that if one assumes the other properties are of less value, then using the 12% may be the best since it is the most conservative approach to valuation. But, in any event, it’s all about one’s best guess.
Thank you for the link to Devon Shire – PBN shareholders (of which I am one) will no doubt love the article – but until we have better information on the status of PBN’s other properties, I think the DS valuations are wistful thinking. Cheers, Brian