What happens in Knopcik........ The unsolicited offer by Velvet to acquire Iron Bridge at a “low ball” price, forges on with no sign of a counter-bid. As a Globe and Mail columnist pointed out, this may “be a harbinger of deals to come as the market grows impatient with share prices lagging the recovery on crude oil.” With its own lagging share price, CKE is particularly vulnerable to a low ball bid, merger or offer to take the company private.
The risk increases if the Velvet bid succeeds. Bison, a significant shareholder in both Iron Bridge and CKE, could well be a candidate to spearhead it - with or without management.
At what price ? Probably about 31c per share. Why? Because this is about the price at which Bison acquired their stake - this is about the price at which an investor recently bought $2 million flow through shares and finally this price is about 50% above CKE moving average for the last 90 days (although it seems for ever)
This price, of course, will fall far short of most investors and some analysts expectations of about 75c to 90c a share. But who is in a position to challenge it with a serious counter offer. In my opinion, CKE management is simply not releasing sufficient information of the sort required to motivate such a bid. Here is just one example (of several) where CKE reporting falls short - their land holdings.
CKE primary holding is about 53,200 acres (44,350 net) of Montney rights in the Birley/Umbach area. In a footnote to its end 2017 reserve report, CKE further informs us that besides this, CKE owns another 86,642 net acres of undeveloped land - which it values internally at $392.00 an acre. (February 2018). Exactly where this is located - we are not told.
Some of this undeveloped land might have a value higher than $392 an acre - far higher.
Back in May 2016, CKE sold 20 sections (15 net) in the Gold Creek area to RMP Energy - the predecessor of Iron Bridge Resources. Following the sale Chinook reported that it would still own 24.5 sections (16.5 net) in the Gold Creek area and 35 sections (20.5 net) in the adjoining Knopcik / Pipestone area (May 25, 2016)
In January 2017 CKE reported that it had sold 15.6 net sections in Gold Creek and in February 15.8 net section in Knopcik/Pipestone. We are not told to whom but it seems to me that both parcels were sold to Velvet (January - February 2017)
According to these numbers, CKE could / should now still own 1 section in Gold Creek and about 5 sections in Knopnick. That could be worth a bob or two as these parcels would lie at the heart of the Velvet and Iron Bridge battleground
The prices that CKE sold their land in this area was to say the least reasonable. According to the BOE report, Gold Creek was sold for $1,052 an acre (not a bad deal considering it flowed 35% liquids). The price for Knopnick appears to have been around $750 an acre but here one one must take into account that “5.25 net sections would have necessitated drilling activity in 2017”
So what could the remaining land (if it exists) be worth today. 6 sections at between $,1400 to $1600 an acre would net $4 to 6 million - more than enough to pay off CKE current debt and add a well or two. On the other hand, it could be worthless. We simply don't know because we have not been properly informed - on this and several other issues.
Other issues on which shareholders (ultimate owners of CKE) remain in the dark about our company are.
- Plans for the old Nuvista pipeline (If any)
- Shipment commitments (if any),
- Details of recent land purchases
- $2 million or so over budget expenditure on the plant expansion.
As a sometime share analyst of resource stocks (but not oil and gas), let me absolutely assure you that no analyst is going to be comfortable (let alone motivated) to plough through all the CKE reports, news releases and SEDAR filings to generate a meaningful report let alone give CKE a positive boost. For such a small company, with such a small following, it is simply not worth the effort. Until CKE management makes it easier for them, enthusiasm for the stock will remain at a minimum.
Herein lies the problem for us ordinary investors. While the share price lags, CKE remains a target for a low ball takeover. This is a great little company - the delivery blocks should ease in a few years. As Stevelikegas put it in a recent post “ A little patience is needed. I just hope management doesn't screw the shareholders over and give the company away.”
At 31c CKE would be a steal.