Rodinia Oil Corp: ROZ.V
Current Price: $0.045
Target Price: $1.31
Potential Gain: 2,811%
Shares Outstanding: 107,404,440
Market Capitalization: $4,833,200
Click here to see Rodinia's Investor Presentation
PetroFrontier Corp: PFC.V
Current Price: $0.26
Target Price: $2.22
Potential Gain: 754%
Shares Outstanding: 79,400,768
Market Capitalization: $20,644,200
Click here to see PetroFrontier's Investor Presentation
Vancouver, B.C. -
Rodinia Oil Corp. (TSXV:ROZ) and
PetroFrontier Corp. (TSXV:PFC) have become strong buyout targets thanks to acreage valuation of their nearby peers that far exceeds their market caps. Both companies are run by the same management team and both hold very large acreage in Australia for the purpose of onshore oil exploration. Rodinia holds an
85% interest in 23 million acres in the Officer Basin located in Southwestern part of the country. PetroFrontier holds an
87% interest in 14.1 million acres in the Georgina Basin in Northern Australia.
Both companies have seen a large reduction in their market cap and share price over the past two years, despite positive developments on surrounding land and the increased appetite for Australia to increase their oil production. This is particularly apparent for PFC as neighbouring lands in the Southern Georgina Basin held by Central Petroleum Ltd was
farmed into by global energy giant Total for a total of $190M earlier this month. The deal implies a
value of $37 per acre for Central Petroleum's Southern Georgina Basin's holdings.
Compare that to PFC's market cap of $20.6M for an 87% interest in 14.1 million acres. That implies a value of just $1.68 per acre, making the company a prime buyout target for Statoil, Total, or whoever else wants to expand their investment into Australian oil exploration. The $190M deal was for 68% of CTP's Southern Georgina Basin's holdings, where CTP retains a 10% share of the 68% farm out. If PFC were to obtain a similar deal, their implied market cap on their remaining 32% would be:
32% x 14.1M acres x 87% interest x $37 per acre = $145.24M market cap. Including the 10% share on the 68% farm out would be 10% x 68% x 14.1M acres x 87% x $37 per acre = $30.86M market cap. The total market cap of these two components would be $176.1M, or $2.22 per share. PFC's comments on the Total-CTP deal
can be seen in this news release.
Rodinia makes an equally attractive buyout target. The Officer Basin is located south of the Georgina Basin. While there is no reason to expect a significantly lower dollars per acreage valuation of any farm out there, let's assume a 50% discount or $18.50 per acre. Rodinia is currently actively seeking a farm out partner or direct buyout through a
strategic review process so there is a great chance in the short term that one of those corporate transactions will take place, but it is fair to assume it would be at a discount relative to a company that is not actively seeking such a deal. The implied market for ROZ at a 50% acreage valuation discount vs PFC would be as follows:
32% x 23M acres x 85% interest x $18.50 per acre = $115.74M. Including the 10% operator interest on the 68% adds another $24.59M for a total market cap of $140.33M or $1.31 per share.
Investor confidence on oil and other exploration plays has plummeted over the past couple of years as there is a race to large cap equities and other relatively safe investments and away from the TSX Venture. That, combined with the growing pains both ROZ and PFC have experienced in the recent past has created and incredible "buy-low" opportunity for the stocks of both of these companies. While individual investors might be fearful of such plays right now, it is clear that Total, with their $190M farm-in investment, is not afraid to invest in identical Australian oil exploration opportunities. Nor is StatOil with their current farm-in with PFC. This makes ROZ and PFC prime buyout targets at their current price levels as it is a lot cheaper to buy both of these companies out than it is for a farm-in from a large operator's perspective.