Hydra Capital update Notes from the Hydra Capital blog two weeks ago:
Tenaz has gone from being one my worst performers to one of my best, and all I needed to do was wait. Nothing has changed in my view here since my last post on TNZ, but the chart says that the market is catching on. In terms of positive surprises, TNZ recently reported its Q2 results, which included contingent and prospective resource assessments on its Dutch North Sea blocks that show years of development and exploration potential. In terms of development potential, the Rembrandt and Vermeer oil discoveries (operated by Wintershall) and two gas discoveries in blocks operated by Neptune Energy were estimated to represent around 4.3 million boe of potential (mid-case, unrisked) with an after-tax NPV10 of $86 million net to TNZ’s interests. That’s not mind-blowing, but that upside comes for free as a shareholder — and with the stock still only valued at just over 1x EV/CF, I’ll take it.
My favourite analogy right now for TNZ is that it’s like a bee flying right between the eyes of most institutions. Because of its small market cap and modest liquidity, most institutions simply can’t own it (or don’t see it) because it doesn’t meet their size/liquidity hurdles. No matter how much they might want to invest in an international roll-up strategy being executed by one of the most experienced and competent teams in the industry, many institutions simply can’t. I’ve seen it dozens if not hundreds of times. Institutions that wouldn’t even look at a given stock at $1 will gladly buy the same stock at $5 once the story has evolved further. There’s nothing wrong with that, but it’s something that I think about when it comes to TNZ and my level of patience with it. With this team, and with this share structure (there are only 27.5 million shares outstanding), I think that my odds of eventually seeing $10+ are very good if I just give it time, so that’s what I’m going to continue to do.
While I’m waiting for “the next deal”, TNZ has exposure to two themes that I really like right now, namely 1) a WCS spread that is expected to be far more well-behaved going forward once the TMX pipeline comes onstream, and 2) exposure to the European energy market where pricing and scarcity are both in TNZ’s favour. Sometimes my favourite positions are the ones that I really don’t have to think too much about, and for me, TNZ is firmly in that camp.