Post by
mrmomo on Oct 02, 2020 9:21am
Some thoughts & analysis on Pou events.
After Paramount confirming a significant investment into Nuvista with a large block trade of about ~18M shares via the Tsx market, i decided not to post my analysis and to delay my views until today. I really wanted to see WHERE the market players & the folks involved in this deal brought the trading to. What i witnessed was both unimpressive & disappointing for several reasons. Let me explain.
As many of you know, i've been quite crtical of the Canadian energy sector and especially heavily indebted companies like Nuvista. I did not hide my criticisms, they were all there in plain view for all to see. Also, as i've mentioned many times on these boards, i cautioned investors to tread carefully when investing in companies at certain times or certain levels in this inhosptial evironment. I'm sure if you reread some of my past comments regarding Nuvista, they probably weren't to endearing. But i hoped in the process, i saved some you folks some time & money.
With Nuvista specifically, i had mentioned many times that their debt load far outweighed the value of their assets and that investors were better off in other more stable names. IF they wanted to enter or continue investing in this sector. Even though i invested heavily in energy names in the past, i personally, did not touch ANY energy names for almost 10 years and ONLY re-entered recently after purchasing Crew Enerrgy. My current positions at this are limited to a few and very modest. Nuvista being one that i recently acquired soley based on current events & valuations. So why did i purchase where i sadi not to?
To answer this, you first need to understand valuations, monetization & changes in perceptions and/or environments. As i don't want ot get into any deep discussions or explanations on these issue for brevity sake, so you'll just have to take my word for it. Let's just say that when entering a beatup sector, there are good, bad & ugly companies to invest in and it's ALL about timing, being at the right place at the right time. That's the ONLY way you'll make any money in a situation like that. So for me it was the RIGHT TIME to enter Nuvista as there was some possible value to be exploited there. Have we really finally arrived?
So here we are. First, let me say that what Paramount did was not unexpected, i did mention several times that the financial condition Nuvista was in, a merger with another ep was a "great" possibility and Paramount was top in the running for this. Among several others of course. What was NOT expected, was in the manner this was done. Way to public & waaay to obivious. Why Paramount & Nuvista, if there was some deal in works, did not keep this under wraps until the absolute final day for reveal & acquire outright is a mystery to me. Until you start to peel the onion apart. So what's going on here? Why was this not done in the "normal" fashion & made so public?
This is my take on the situation. IF Paramount is REALLY interested in Nuvista AND Nuvista is stuck, cannot get a better off and has nowhere else to go, then this is the situation. There are other factors at play here, which i'll briefly explain later but this is the gist of it. Why would Paramount "feel" the need to "acquire" a large block of shares, exposing it's intentions and a possible deal? Only one reason imo. If the acquiring company isn't certain that the deal will be passed by s/h and therefore needs to acquire as much control as possible to increase its chances it will be. Why? Because it's a good chance the condtions of the deal aren't too favorable and might be rejected or resisted by s/h. This is especially possible in a widely held stock like Nuvista.
So how bad is this deal? If there's any deal here, and there's a good chance there is, it's probably NOT what many here expect. What do i mean? Well... deja vue? As Mr. Pony is walked to the glue factory. If you don't get the analogy then you should not be here. Why do it say this? Yesterday's trading was really an eye opener for starters and that's why i delayed my assessment until this monring. I wanted to see where this went, or my acurately where THEY brought it to. And it was all there for EVERYONE to see. In ANY normal circumstance, a possible hostile/friendlly takeover or possible overture SHOULD have sent the stock close to $1....easily. It did not get there, not even close. It was stopped in it's tracks at 0.75 and NEVER went back. Volume was also abysmal & underwhelming. A scenario like this should have had every "in the know" market player buying like crazy into stock overwhelming any obstacle put to stop it and 3X the vloume at the very least. But no, nothing, dead as doorknob.
The gig is up. So based on those facts, i CANNOT see how this will be a good deal for s/h if there is one. I think Paramount is looking to buy Nuvista the cheapest they possibly can and Nuvista mgmt might let them have their way. Tainted Pony anyone? Unfortunately we might be wintessing another rerun here, same sh*tty dance just a different tune. So why is this happening? This is my take on this. I believe that since the sector has been in a downward spiral for a few years now and just recently & completely decimated with low energy pricing including the aftershocks of the CoronoV epidemic, the camel's back HAS BEEN broken. The Canadian energy sector which has been particularily hit hard and is totally centered in Alberta has been virtually raped. This has has unforseen conquences, which i mentioned above and will briefly explain below.
It's my belief that the shocks to the system were so significant that Alberta and all those involved just tuned everything out and started an extreme process to rebuid. Not caring for any collateral damages along the way.....ie one such are the s/h. Who are "those" people? Well, those who have the most to lose of course, the Albertan Gov't, the lenders & banks and the heads of the O&G companies. It's my belief that all these players got together, "loosely" of course and decided or agreed on a course of action. Consolidate a very fractured & delicate energy ecosystem by REMOVING the small & the WEAK and putting EVERYTHING in the hands of a very few. ANYONE that opposed to this would be blacklisted and prevented by lenders from going forward. So either you were with the program or you disappeared. This is what i believe is going on and Nuvista has been caught in the web with nowhere to go but deal.
So what are we looking at here in term of possible value? Looking at this whole situation, i was trying to get a good handle on what possible value they put onto Nuvista, something that would not only satisfy them but also barely pass in the market. On this assumption, we then have to look at the most recent deals made to get a reasonable value within THEIR constraints. So ee must look at the PPony/ Canadian Natural & Whitecap/Nal deals. Both recent deals with some similarities with Nuvista BUT in different producing areas. With PPont being in the gassy prolific but remote area of Ne BC and Nal being in the mediocee oil/ngl's region of Cardium. One common factor both deals had was a low metric for value in terms of flowing barrel, NAL sold for ~6k and Pony for just iunder 10k. As i WOULD NOT use this as the only metric to value Nuvista, it at least gives us some inisight & direction.
The other metric which was very interesting BUT in complete contrast in both deals was reserves. PPony being mostly gassy at 80% of production & reserves and NAL being at least 55% oil/ngl's. Since PPony ONLY received barely .50 per boe for their gas and Nal ~$3 per boe for their mix, we can extrapolate some value for Nuvista. After running some numbers, as much as i would like to see the values stated in my previous post, i cannot see that being possible when taking into consideration not only the trading BUT the metrics here AND the fact that BOTH companies sold for LESS then official stated values for reserves discounted to10%.
This is what is possible imo. Taking the above into consideration, even though i cannot fathom a value of less than the current 0.70, the upside might be severly limited and anyone $1 MIGHT BE at risk for loss or as i've mentioned above, being part of collateral damages. As this is VERY difficult to judge with all the moving parts & politics involved, i'll just make a few predictions along with the probability of them occurring. So here we go. Anything OVER $1.25 though possible based on the NAL deal (for reserves) is highly unlikely, so 10% chance. Anything in between $1 & $1.25 is possible based on the fact of strong levels of production & an asset mix, both where one or the other was missing in the Pony & Nal deals. So 20% chance here. Anything in between current price of 0.70 to $1 is highly probable based on what percentage of official stated values of both Pony & Nal the were sold. So 70% chance here.
I know this IS NOT what many wanted to hear, but like i keep preaching to folks, sometimes you CANNOT deny or dismiss facts especially when they're staring you straight in the your face. Hope i'm wrong but not holding my breathe.
Good luck to all.