Posts from the ‘Arcan Resources (ARN)’ Category

Big News for Arcan (and Second Wave)

I’ve owned Arcan Resources (ARN.v) since November 2009, when Sculpin2, an Investors Village poster, introduced me to the company.  Its been a love, hate relationship, with the hate culminating during the second half run last year when pretty much all stocks went up but Arcan did nothing.

Now, I am rarely so patient but in this case I was, and I held on to Arcan through it all, increasing my position in the stock until it was (and is) the largest in my portfolio.  Why?  Because it was clear that the Beaverhill Lake formation had a lot of untapped oil, I was confident that clever reservoir engineering now equipped with the new weapon of horizontal mult-fracs would eventually figure out how to tap that oil is a consistent and profitable way (being one of these myself I may be biased in my enthusiasm here), and it was clear that Arcan had a wonderful land position to take advantage of that success.

Well it looks like that investment is really beginning to flower now.  Last night Crescent Point Energy released this news release.

• Identified the Beaverhill Lake formation around Swan Hills as an emerging oil resource play that they have taken a large position in
• Announced the “acquisition of ownership and control over 16,750,000 common shares of Arcan, representing approximately 19% of the issued and outstanding common shares of Arcan”
• Announced three recently successful wells in the area producing well above their expectations, “with average first-month production rates exceeding 1,000 bopd gross.”
• Significantly expanded their capital budget to drill wells into the Beaverhill Lake, saying they “could spend up to an additional $100 million on capital expenditures in the play this year”

This is all great news.  The evidence is suggesting that Crescent Point may eventually take Arcan out. But maybe not.  I’m not in Arcan for a short term takeover so I would be equally happy to let the company continue to drill out their land and increase production. I suspect there will be more surprises (like these recent 1,000+bbl/d IP wells) as the engineers and the geologists figure out better ways to optimize getting the oil out.

Second Wave is looking better and better as well.  I’m glad I bought what I did a few days ago, but I do wish now that I had been even more aggressive.  Oh well, that’s how it goes.

There was also a good post on Seeking Alpha about Arcan that came out last night, discussing the possibility of a takeover.

Update

I caved and bought more Second Wave this morning.  It probably sounds stupid to buy a stock up 10%.  Maybe.  But this is a case where there are good well results coming out, where the stock is still trading within the range it has traded at before the news came out, and you should start to see more investors take an interest in the story as they hear about the Crescent Point interest in the play.  I am betting this 10% is the first of many.

Comparing Oil Juniors

I posted a spreadsheet I keep that compares oil juniors on the ARN.v Investors Village board today.  It generated a little controversy on the subject of bean counters.

The truth is that I like to use spreadsheets to compare companies in a sector.  I have a number of them.  One for oil juniors, another for gold producers, another for oil services companies, for trucking companies, and so on and so on.

But please don’t misunderstand me.   I am not someone who relies strictly on quantitative analysis, ratios and such,  to pick stocks.  I always look for the story first.   Numbers are a useful tool, but the market is not so rational that you can use them with disregard.  I have learned this lesson after having invested in too many undervalued stocks that have continued to remain undervalued for far longer than I have had patience.

What spreadsheets are useful for is understanding how the market is valuing the story when compared to other stories.  Stocks with good stories are always going to command premium valuations.  Take Arcan as an example of that.  Arcan trades at 155K per flowing boe one of the highest of the stocks I follow and one of the highest in the sector I’m sure.  But Arcan has a unique land position on a developing play (Beaverhill Lake) that is likely to lead to strong growth and eventually a buyout.  You can’t capture that in a spreadsheet and so you would miss the boat if you had only looked at Arcan through the eyes of an accountant.

So what else does this spreadsheet tell us?

Well it tells you just how much you are paying for growth with Second Wave Petroleum (SCS.to).   You can’t justify the current price of Second Wave based on their reserves found so far, or their current production.  You have to look ahead to their potential in the Beaverhill Lake play and realize you are paying for some of that success in advance.

So does that make it expensive?  Well some might say so, but it depends on what that potential success actually becomes.  I’ll tell you what, I just read a report explaining the success of Coral Hills (a private oil co also with a sizable land package in BHL that surrounds SCS land and is also a  farm-in partner to SCS on some of their land) and the IP’s coming from Coral Hills last couple wells, which basically surround the land owned by Second Wave, have met the expectation of the first boomer well (news release here).  Now nothing is a sure thing and it could be that these are small sweet spots and that succes won’t translate to SCS, but I wouldn’t bet on that sort of pessimism.  The bottomline to me is its an impressive result and it overrides any concern about the valuation of SCS being too high.  I plan to pick up some Second Wave this morning.