RE: POP/ARW The record needs to be set straight here on the POP versus ARW debate. While ARW is a fine story in its own right, you've got things backwards. POP is the screaming deal and ARW is the one to be sold.
- Aroway's Peace River Arch assets are in an area that is typically exceptionally gassy with fewer viable light oil deposits.
- Access in this area is much more contingent on weather with many areas featuring heavy snow and dense forests.
- Aroway operates in Alberta, so that is 50% royalty haircut compared to the 3% regimes found in Saskatchewan and Manitoba. So any dollars the company makes are essentially halved. ARW`s barrels are more like 320 when it comes to the bottom line, and their costs of production are typically going to be higher than those of POP.
- The bulk of ARW shares are owned by a small, tight group of exceptionally wealthy people who vended the O&G assets into the company while retaining roughly a 50% stake, thereby bringing Mom and Pops in to finance the company, take the risk, but share in only a fraction of the upside, while providing the aftermarket and liquidity required by the insiders behind the deal to liquidate into.
- ARW doesn’t own half the land and is not the operator on many of its core projects. POP has full surface to basement rights and remains the operator on all of its 100% owned and controlled projects.
- ARW`s internal costs and burn rate are drastically higher, on a per bbl/day basis than POP's
- ARW's costs and netbacks nowhere near as good as POP's
- ARW doesn't have 20 million shares in the highest potential company in the Yukon, GSR, obtained at no cost or risk to POP.
- POP has simply accomplished more in a shorter period of time, at a lower cost, and its geological assets are in every way superior and more prospective than ARW's.
- ARW's deals and structure are complex and lacking in transparency. POP has 100% control over all assets, surface to basement, in the two best jurisdictions in North America. If ARW hits on a well, the stock will do nothing more than shrug its shoulders. If POP hits, they stock will move substantially (on every hit).
This DD blurb is a glib condensation of the total package of facts I know on both companies. Both companies have their merits, but ARW is custom built by insiders and vendors to make themselves rich off the assets and the back of the market, while POP is built with insiders as significant share and option holders DRAWING NO SALARIES. POP, having lower costs, better royalty regimes, and 100% ownership will see significant boosts to share price with each discovery and at each quarterly report. ARW's reporting will be very complicated as pretty much every asset is sliced up 100 ways and dollars are travelling to different parties in 365 degrees of direction.
Today their market caps are the same--34 million. But I am willing to wager that POP will have blown ARW's market cap away by year end 2012 and most likely POP will be out producing ARW as well. Certainly, POP's cost structure and IRR will be better. Some people here know I own both companies. But my DD points to only one as the clear winner. Feel free to disagree, but I'm confident if you look deeper into both deals, and really see what's under the hood, you'll come around to my way of thinking.
James Hudson, AlphaFlight Portfolios Inc.