Rubellite Energy keeps expanding profitably

Rubellite shares seem deeply undervalued

Rubellite announced a CDN$34 million acquisition on October 19, 2023 which added 800 Boe/day of output and sizeable Clearwater acreage. I added the acquistion to my Rubellite model and concluded that the shares should be worth over CDN$8.00 by 2025.

That valuation depends on the price of Western Canadian Select (WCS) which I have modeled at CDN$80 per barrel net to Rubellite, more or less where WCS is priced today although Clearwater heavy oil tends to price at a small discount to WCS and the CDN$80 assumption may be aggressive. Rubellite’s hedge book suggests CDN$80 a barrel is likely for the rest of 2023 and 2024 is anyone’s guess. The recent sharp drop in WTI is enough to make many investors nervous. Rubellite has two thirds of its output hedged at WTI less ~$18 per barrel which at US$75 WTI is about CDN$82 a barrel, and the balance at an average price of ~CDN$90 so I am not anxious about 2023. The soon-to-be-released Q3 report will update investors on the 2024 hedges which at August 10, 2023 amounted to only 350 bbl/d at $100.80.

I have no doubt oil prices will remain volatile and remain a risk energy investors cannot avoid. In the case of Rubellite, the company’s costs are low at about CDN$25 per barrel all in, and cash flows will be positive across a wide range of market prices for oil. Small companies present more risk than larger and more diversified ones, so Rubellite is not for the faint of heart. Nonetheless, I see it as deeply undervalued at a current price of CDN$2.60 a share and like the risk-reward profile. I hold 80,000 shares.