Tight oil markets make Rubellite Energy a steal
Fast growing, profitable and little debt make this tiny company a great opportunity for risk takers
Rubellite Energy (RBY.TO) resulted from a spin-off of assets from debt-ridden Perpetual Energy (PMT.TO) and concurrent public financing, the proceeds of which were used to buy the Rubellite lands in the prolific Clearwater play from Perpetual, reducing debt for Perpetual while creating a debt-free fast growing pure play on the heavy oil being developed in the Clearwater area. Rubellite went public at CAN$2.00 a share and today trades not much higher than CAD$2.00 (today’s prices is CAD$2.30 last I looked).
With only 62 million shares outstanding, Rubellite has a market capitalization of about CAD$140 million and at the end of Q2 2023 was producing just over 3,000 Barrels of Oil a day with netbacks over CAD$40 a barrel. I expect 2024 production to come in somewhere around 4,000 barrels a day, and netbacks to be a bit higher, say CAD$45 a barrel, a result of the firmer oil prices we now see resulting from tight oil markets and the mid-East conflict. At that rate of production, cash flow on the order of CAD$65 million seems probable, and at a growth multiple of 5 times cash flow, the company should trade north of CAD$5.00 a share by the end of next year, and keep on growing as long as heavy oil prices don’t collapse. The 2024 start up of TMX should narrow heavy oil differentials and become a bit of a tailwind.
My updated financial model (pretty rough, many assumptions, a few guesses) shows value rising to more the CAD$7 a share in 2025. If that materializes, investment at CAD$2.30 or so pays off. I hold 65,000 shares. I expect to keep them for the long haul.
Michael, what do you think of PMT, they have warrants in RBY and receive management fees from RBY. Susan of course is Alberta royalty and her hubby is in a position to help her out with drill crews etc. I used to hold some RBY, but now only PMT which Im underwater in..
Latest presentation PMT from Sept
https://perpetualenergyinc.com/wp-content/uploads/2023/09/Perpetual-Corporate-Presentation-September-11-2023.pdf