RE: RE: RE: Slow DownHi a4,
I agree, can't get too far ahead of ourselves and start ordering Porsches.
My point was that there is a lot of upside here which the market has not recognized. True, they trade at a high multiple to current cash flow, but what is equally important is the probability that future growth can be achieved.
Before all this HZ stuff, ARN estimated they were worth almost $4/share NAV. That included good assets with long life infrastructure in place, which was not cheap (waterflooding, oil handling facilities, etc.). One of the reasons their share price had sunk so low was that they had continually failed to meet expectations for one reason or another. I think the market punished them severely for that, which in turn makes further growth harder since equity markets are not easily accessible. Throw in the near impossibility of accessing debt a year ago, and that goes a long way to explaining the share performance of the past while.
So a jump up to $3-4 does not reflect very much of the current potential, in my view. What will really make the stock a winner, unfortunately, is whether or not they get uplift from all the hype and get, frankly, well over valued. I take something like Crew as a good proxy - they rocketed from a few dollars to $20 back in 2006 or so, then fell back to earth. They are now climbing their way back because they have sexy plays. If the Swan Hills proves itself as it is appearing to be with these few wells, it too could lead to overvaluations and double digit numbers for Arcan. Which would be a good selling point.
That's the way the junior game works. Things are undervalued until everyone gets on the band wagon, then they get overvalued. The trick is jumping on and off at the right time. I think Arcan is not in any way overhyped or overvalued yet. They could easily crank out $.60/share cash flow next year, which would put them now at 6x forward cash flow. Not expensive at all, if the wells continue to show promise.
Also, I don't think values per flowing bbl are a useful indicator when you are buying something for potential. If it was, Arcan would be complete idiots for paying over $100k/bbl for the Celtic package. Similarly, to value them now at a $ per flowing bbl doesn't give any value whatsoever to the potential on their lands.
As for VRO, I think the gas component is a major difference. Forward strip gas prices of <$5/mcf won't yield netbacks anywhere remotely close to light oil.
Anyway, my 2 cents.