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.