Post by
BNPResources on Jan 08, 2018 9:10pm
BNP - December 2017 - Letter to Shareholders
The purpose of this monthly letter is to bring BNP shareholders up to date, on issues and news, since the last letter. In addition, this letter serves as a general update on 2017 business development activities, not previously reported. 1. The following is a summary of business development activities for 2017: (a) Very sorry for the delays with this letter. My family and I enjoyed the Christmas and New Year celebrations in New York this year, but I also suffered with the flu over the past few days. Ive recovered today and will get caught up on my shareholder updates, with 2017 business development activities, not previously discussed. (b) Funding is still the primary focus. Will continue to review and update. (c) US News - Trump Tax Plan: Basically, the US corporate tax rates have been reduced to the same levels as Canada. This will prevent head offices leaving the USA for Canada due to lower Canadian tax rates (Burger King / Tim Hortons). The US stock market is up mainly due to the drop in the US corporate tax rates. All US based corporations will benefit. As the economy improves, US salaries will rise. Florida will continue to be one of the best head office locations as there is no state income tax, and the weather is pleasant year round. If BNP was going to have an operating head office in the USA, Florida would be the 1st choice. Other options include Alaska, Nevada, South Dakota, Texas, Washington and Wyoming. Building a hotel on Daytona beach, might be a good place to start, for those of us that enjoy car racing. Beaches, car racing, and American beer life doesnt get any better. (d) Next trip to Calgary planned for January 26th. (e) I have been looking at the new Duvernay oil play in Alberta. Raging River (RRX) is one of the participants and believe that they may have staked the sweet spot of this major oil play. With a shale play, porosity and permeability is very important, as without it, the oil will not flow. Another few years of drilling will be required to confirm that RRX is in sweet spot. I tried to roughly map the play to determine what infrastructure could be required to support the play, outside of the midstream / pipeline business. It appears to me that new hotel construction has been limited. I am proposing that a new 100 room, 3 star hotel (Hampton, Hilton Garden Inn, or Ayres) be constructed at Hardisty, Alberta, on the main highway. Most oil from this play will find its way to Hardisty, for export by Enbridge or TransCanada. Over the next 10 years, there will be more economic activity and capital projects, directed towards conventional oil. Hardisty currently has a nice 64 room 2.5 star hotel in town. There is a nice 75 room motel for sale in Three Hills for $6.4 million, which could benefit from the drilling. Camrose and Stetler are also areas to consider. Quick serve restaurants, such as McDonalds and Tim Hortons, have locations in Camrose and Wainwright, but not in Hardisty. The Hardisty community could benefit from either a McDonalds or a Tim Hortons during this sustained construction period. (f) Angel investing I have been working on a business plan to apply $15 million in capital, towards obtaining funding for capital projects. My internal estimates allow for a 50% annual pre-tax return. Assuming that we could obtain access to $15 million US, we could have it paid out within 2 years. The tax losses within BNP may be able to shield us from paying any income tax on profits, for 3-5 years. This venture will be held in our merchant banking division. We have one Senior Vice-President (SVP) candidate proposed. Compensation is based on a base salary plus bonus. Bonus is calculated against rate of return, plus return of 100% of capital, over a 12 month period. Base quota is a 50% return on invested capital. The SVP bonus is based on exceeding the baseline quota. Interesting business unit that could grow into M&A. (g) Windsor toll bridge to the USA - Currently, this is one of the only privately held bridges in North America. The owner is currently fighting the Government of Canada over construction of the competing Gordie Howe Bridge. An opportunity exists to buy out the Windsor bridge, the duty free business, and a fuel sales business, from current owners. Approximate cost is about $3 Billion US. In my opinion, the Gordie Howe bridge will never get built, without a private sector solution. The bridge owner would benefit by selling this year, based on the lower federal taxes, which increases EBITDA, and the value of the company. Ive picked out a theme song for this deal, which is New York New York, by Mr. Frank Sinatra. This deal was developed with inspiration from our independent director, who uses the bridge daily, while I was living in White Plains, New York, just 40 minutes north of NYC. The song is inspirational for a small start-up company If I can make it there, you know Im going to make it just about anywhere. (h) Quebec City Hockey Team. We had been following the New York Islanders, arena problem very closely, over the past year. They were successful in getting a new venue approved at the Belmont Racetrack, in Nassau County. I congratulate their owners for getting this deal done, which will keep the team in Long Island. We are still interested in buying an existing NHL hockey team, with the intent of moving it to Quebec City. We believe that there is sufficient fan support, to fund the purchase of the team with equity. We recognize that the Quebec City fans are the best in Canada. We prefer to purchase an existing team and relocate to Quebec City, rather than obtaining a new franchise. The Calgary Flames are our next target, for relocation to Quebec City, if the City of Calgary does not support the construction of a new stadium. Quebec Flames 2019 - Two theme songs for this deal 1) Rainy Days and Mondays Richard and Karen Carpenter for the Calgary Fans, and 2) Top of the World Richard and Karen Carpenter for the Quebec fans. (i) Canadian / US Politics Blog The Trump Administration has done an excellent job during the first year in office, specifically the tax plan to reduce corporate taxes. The Alberta / Canadian Government has just added a carbon tax on gasoline valued at approximately ten cents per gallon. The Trump administration approved 2 pipelines over the past year, including Dakota Access and Keystone. The Dakota Access line is in service and is benefiting producers. The TransCanada line still has routing issues in Nebraska. In Canada, the City of Burnaby is refusing permits for the Trans Mountain Pipeline expansion. Im seeing limited interest from the Government of Canada to resolve this issue. Completion of pipelines will narrow the crude oil discount, improving netbacks for producers and government royalties. This will improve job prospects for Albertans. I encourage the Government of Canada to allow construction of the pipeline without the City of Burnaby permits, if necessary. (j) Standard Exploration (SDE) was up to four cents, on rumours and speculation (denied by management) that it could become a marijuana distributor. Nine million shares traded in one day. We await the next news release from SDE. Marijuana appears to have good medicinal qualities, according to Scott Adams of Dilbert fame, but I havent been able to find any doctor that will prescribe it. My doctor always discouraged smoking cigarettes. As I go back to the 1983 Hemlo gold discovery, in the mining business, it has always been the junior companies that made the big discoveries. Although BNP is a small junior company, we have a strong backlog of business development prospects. The proposed purchase of an NHL team, for relocation to Quebec City is my favourite deal. I am also committed to finding a path forward to get the Gordie Howe Bridge constructed. Canadians need the jobs and alternate routes between Windsor and Detroit. Make Canada Great Again. Oil prices are holding steady in the $61.59 US level for WTI crude. I believe that the range for oil prices in 2018 will be from $53 - $65, with an average price of about $59. Sufficient supply exists in the world with Libya and Nigeria working to bring back supplies. US shale oil production can be brought on quickly by bringing on DUCs (drilled uncompleted wells). Growth in electric cars will utilize electricity from coal fired and natural gas fueled generation. The management and directors of BNP wish all shareholders a prosperous year ahead.