The company announced the acquisition of a 100 per cent stake in Baccalieu Energy Inc, a Canadian oil and gas production company, for C $235.5 million (HK $1.6781 billion).
The target company is a Canadian oil and gas producer, and its business is focused on the economical light oil resources of Cardium formation. The target company occupies 181 blocks (approximately 469sq km) of land (50 per cent undeveloped), including 139blocks with Cardium stratigraphic interests (about 360sq km), and its operations are mainly concentrated in the central and western part of Alberta, Canada. In addition, the target company owns and operates about 200km of oil and gas collection system infrastructure, including 13 oil collection and treatment areas (oil batteries) with a total capacity of 1500 cubic metres per day and nine dissolved gas compressors with a total capacity of 0.5 million cubic metres per day. The equipment is then connected to 28 third-party natural gas processing plants with a processing capacity of more than 85 million cubic metres per day. As of February 11, 2014, the target company has a total of 195 oil and gas production wells.
Reserves data: according to the reserves report prepared by GLJ Petroleum Consultants as of December 31, 2013, the target company has proven reserves of approximately 16.2 million equivalent barrels (60 per cent light oil and natural liquefied gas, 40 per cent natural gas) and confirmed plus estimated reserves of approximately 22 million equivalent barrels (60 per cent light oil and natural gas, 40 per cent natural gas).
Operating data: the average daily output in the first quarter of 2014 was 4244 barrels per day, of which 67 per cent were light oil and natural liquefied gas and 33 per cent were natural gas. The average net operating return in the first quarter of 2014 was C $51.5 per barrel.
Comments:
Through the communication with investors of listed companies, we understand that after about 5 years of establishment, the original ownership structure of the target company is a PE institution accounting for 80%, the management of the target company accounts for 14-15%, and the rest are minority shareholders). The PE institution is mainly based on investing in the target company for investment purposes, so it chooses to sell and exit. Based on the data of the target company, our preliminary analysis is as follows:
1. The acquisition price is reasonable:
The target company's net income (net profit) in 2013 was C $20 million, and the static acquisition of PE would be about 11.8 times at a price of C $235.5 million. The operating cash flow in 2013 was C $49.8 million. If the cash flow is simply based on this cash flow, the capital can be recovered in five years.
2. The profit and operating cash flow of the target company are good:
Financial data found that net income and operating cash flow increased by 86% and 44% respectively in 2013 compared with the same period last year, mainly due to the increase in beneficiary income, that is, natural gas production. 4244 equivalent barrels per day in the first quarter of 2014 is expected to reach 5500-6000 equivalent barrels per day for the whole of 2014 and further to 7500 equivalent barrels in 2015. The company's operating cash flow is expected to reach C $60 million in 2014, and the target of its own cash flow can support the company's production growth of 20-25% for three years. We are relatively optimistic that the net profit of the target company is expected to reach C $25 million in 2014.
3. The target company has great potential for development in the future.
The target company has only been established for five years, and the blocks owned by the target company can be exploited without restrictions in Canada, especially the Cardium formation block, which has good economic conditions. at present, it accounts for only 4% of the original reserves according to vertical wells, and the production volume is expected to account for 8-10% of the original reserves by increasing horizontal wells in the future.
4. This acquisition makes a significant contribution to the company's net profit:
Without considering the acquisition, we expect the company's original business to make a net profit of HK $515 million in 2014. assuming a consolidated statement for the whole year, if the net profit of the target company contributed C $25 million (corresponding to HK $178 million), the total net profit of the company will reach HK $693 million. Simply calculated on the basis of 15 times PE, the reasonable market capitalization of the company should be HK $10.4 billion. The company's current share price of HK $1.38 corresponds to a market capitalization of only HK $7.285 billion, a potential increase of more than 40 per cent.