Broader oil stocks trending down againIf one looks at the broader market (US and Canada), one can see oil and gas stocks going back down again and touching levels not seen since mid April... and these are the big boys like Exxon, BP, Suncor, etc. Smaller to mid sized companies like Frontera are just plain ugly these days. Definitely no love for oil companies these days. Will we re-trace the ugly depths of mid March...? Probably not.. well I sure hope not... guess we will see how Covid-19 returns this fall.
Again, I have no idea what CGX/Frontera management have in mind, but all those hopes about someone paying well above $500 million for CGX share of the land blocks is certainly fantasy these days.
Lets look at Frontera for comparison:
Current market cap: $266 million @ share price of $2.74 CAD
Current debt: $350 million
Current production: ~46,000 bopd
If someone were to offer them say $4.11/share all share purchase (50% premium on today's close), it would cost the company $399 million to acquire all shares. Add in the $350 million debt and it would be an all out purchase of ~$749 million CAD. In addition, the company would be getting ~75% of CGX (33% of land concessions plus all their share equity) for almost nothing. This would make way more sense to me instead of paying ~$500 million for CGX land concessions (or close to ~$2/share CAD) which bring 0 barrels of production and massive up front costs for drilling, not to mention risks for exploring.
If my assessment looks harsh above, look what Chevron paid for Noble. Look what CNRL paid for Painted Pony in BC. Massive discounts based on current stock evaluations and both companies gave away unexplored land for next to nothing. Covid-19 has destroyed companies ability to demand premiums for current production and even harsher reduction for non-proved oil resources.
If we truly think CGX land is worth that much money, why hasn't anyone come along so far and made us a $1billion dollar bid? Or even $500 million? Management can keep demanding massive premiums, but clearly no one is bitting... and truthfully, I do not blame external companies. Covid-19 has destroyed companies balance sheets and left many of them hurting badly.
Besides, my gut feeling is the government will demand CGX make a move sonner than later. They have had 20yrs to attract partners and drill holes. More empty promises, especially in an era of $40 oil/covid/new government, won't fly anymore... especially if those external reviewers from Canada give honest recommendations.
Again, just my viewpoint on the situation. Hope everyone has a good weekend.