RE:RE:RE:RE:How do you like your near 10% increase today SDE's?Thanks GuidoSan 1 for the kind acknowledgment .
Since Q3 numbers are about to drop, it's probably worth updating things since my July 28 post.
The bottom line for the TL;DR crowd is:
Notwithstanding the 28% share price rise since the last posted, SDE remains undervalued relative to its peer universe. SDE equity valued pari passu with peers on an EV basis is easily $10 per share.
That peer universe (AAV, BIR, CR, KEL, NVA, PEY, PIPE, POU, SRX) consists of companies not materially larger or smaller than SDE and with a mix of gas and liquids weighted towards the Montney play.
Using Q2/21 numbers from the peer group, and proforma SDE as if all of the press released transactions occurred Apr1/21 we can look at two metrics, specifically EV per flowing barrel and EV per P+P barrel in the ground.
The first measure sees the peer group trading at between $31k and $42k per flowing barrel, with an oilier weighting attracting higher prices as seen in the values ascribed to PIPE and POU. The second measure sees a range of $2.12 to $5.28 per P+P barrel in the ground. The split between proven and probable influences this number, and CR with its large proportion of probable and undeveloped is the outlier here.
SDE comes in at $23k per flowing and $3ish per barrel in the ground. That is materially less than the peer group in the $ per flowing barrel department and at the low end in $ per P+P barrel.
The question then is why the disconnect from the peer group?
Is management at SDE that much worse than all of the peers? Doubtful. Are SDE properties materially inferior to the peers? Given that many of their peer’s assets are direct neighbors to SDE, that’s unlikely. Is it the hedge positions? Possibly, but I would argue much of the industry is hedged similarly, and over the multiyear lifetime of the assets the 1-2 year life of those hedges shouldn’t have a huge impact on the discrepancy between SDE and its peers who may have lesser or no hedges. Operating costs and G&A? Nope, looked into that. Debt? SDE debt per flowing barrel is considerably less than BIR, CR, NVA and PIPE and not materially worse than AAV and SRX.
So, what is it?
I’ll argue that the bulk of Bay Street still hasn’t figured out what the old SDE + Inception + Velvet + Cequence + financings + debt conversions looks like. Projections/guidance are one thing but real results are another. And algo’s can’t scrape guidance very well. So maybe Q3 results start to illuminate the picture that has been painted, with a finalized balance sheet and a taste of the cash flow and earnings that will be fully revealed in Q4’s results.
If anybody has some corrections or pushback on the above I’d love to hear it and help improve the thesis.
And finally, I’ve mentioned this before. Look at the land maps. See who’s directly adjacent to the northwest and south of SDE in the Montney. Pipestone and Hammerhead. And who controls those two entities? Riverstone, who is jettisoning everything oil and gas related to focus on the new green economy.
Does 1 + 1 + 1 = 5?
Food for thought.