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Long Run Exploration (LRE)
Long Run Exploration is a resource-play focused producer that has been built both through the drill bit and through the boardroom. Long Run was formed when Westfire Energy merged with Guide Exploration (formerly Galleon Energy) in 2012, and is led by CEO Bill Andrew, who is well known to many Canadian investors from his previous and extended gig at the helm of Penn West Exploration.
Production at Long Run is split almost 50/50 between oil and natural gas, but the focus going forward will be ramping up the oil side of the equation. Fortunately for Long Run, the company has the assets to allow for a major focus on oil: the company is blessed with exposure in two solid oil plays.
The first play is the Montney oil zone at Normandville/ Girouxville where Long Run will be drilling 50 wells this year. Play number two is a Viking oil play at Redwater where the company plans to drill 68 wells this year. Since almost all of Long Run’s 2013 capital spending plan is aimed at drilling Montney and Viking oil wells, the company is set to significantly increase its oil weighting.
Its very modest valuation should make Long Run interesting to investors. As its current share price sits around $4, Long Run is trading at under $32,000 per flowing barrel. This is exceptionally low in relation to recent asset transactions. Competitor Whitecap Resources recently acquired production with an oil and gas split similar to what Long Run has for $60,000 per flowing barrel.
If Long Run was valued similarly, its stock price would be closer to $8 per share, which is double its current price.
$3.63 – $5.07* 52-week Range
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Bellatrix Exploration (BXE)
I’m not sure there is any company with more exposure to high-quality play acreage on a per share basis than Bellatrix Exploration. Bellatrix was formed out of a plan of arrangement involving its predecessor, True Energy Trust, in November 2009.
Ray Smith and his team took operational control of the company early that year, and put in place a strategy of reducing debt, disposing non-core assets and focusing on its core properties in west- central Alberta. Those core properties contain big exposure to the Cardium, Notikewin and Duvernay resource plays. The Cardium and Notikewin in particular have exceptional economics, while the Duvernay is promising but still evolving.
The Cardium and Notikewin wells pay out their full capital investment very quickly. Both the Cardium and Notikewin allow for full recovery of the cost to drill a well in under a year. That is important for a smaller company like Bellatrix: the cash comes back quickly, allowing additional wells to be drilled and production increased. That is a must for a small company to succeed in the horizontal game. In total Bellatrix has 692 Cardium, 401 Notikewin and potentially 314 Duvernay drilling locations. That is an enormous 40-plus year inventory at Bellatrix’s current rate of development.
In 2012, Bellatrix averaged 16,868 barrels per day of production and is projecting a 41 per cent increase to 23,500 barrels per day in 2013. If Bellatrix were to trade for only five times its expected fourth quarter 2013 annualized rate of cash flow, the stock price would be $11.25.
$2.95 -$6.94* 52-week Range
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