I like the prospects for both Rubellite Energy (RBY) and Headwater Exploration (HWX). Both are focused on the prolific Clearwater play and both have stellar balance sheets and operating economics. It is useful to compare these E&P’s head to head based on projected 2024 results using the same commodity price of CDN$75 per barrel.
Rubellite is smaller, produces less oil per share than Headwater and has lower cash flow per share as a result. But it is growing much faster, almost doubling in 2023 and expected to increase output 50% in 2024.
If you value both companies at 6 x EBITDA and adjust for their respective debt or cash levels, Headwater is worth CDN$8.22 a share and Rubellite is worth CDN$6.45 a share. But the market doesn’t yet appreciate the value of Rubellite to the same extent that it does Headwater. As time goes buy, assuming the price realized for heavy oil from the Clearwater play remains at CDN$75 a barrel or thereabouts, both companies shares should migrate to the same percentage of intrinsic value (most Canadian energy companies trade below intrinsic value owing to the volatility of the prices of the commodities they are exposed to and the risks of the energy industry generally) and Rubellite shares would more than double while Headwater shares would appreciate about 10%.
You pay your money and you take your chances. I have a large holding of Rubellite which I bought at its original issue price of CDN$2.00 a share when it was spun out of Perpetual Energy and no Headwater shares which I did own previously but switched into Rubellite effectively converting my gains on Headwater into Rubellite shares at no additional cost. I wil revisit this comparison in about six months and see if my bet works out but so far it is a wash since HWX now pays a dividend and has increased in trading price by about the same percentage as Rubellite since the date of the switch.
Interesting write up, as always - thanks. I think the history of Perpetual/Paramount ET somewhat tainted RBY's launch - very much making it a "show me" story. If they hit your proposed metrics, the history will fade and investors return. RBY's q4 production exceeded estimates, so they seem to be doing it right. Before heading off to BMO, Jeremy McCrea had it a OP2 with a target price of $4.00, noting its successful drilling program and land accretion activities.