In an earlier article, I outlined why I thought Headwater Exploration (HWX) had far more reserves than its NI 43-101 reserve report suggested, owing to that company’s ~350,000 thousand acres of undeveloped Clearwater acreage.
Rubellite undeveloped acreage of 266,113 acres versus comprises 75% of Headwater’s 353,503 undeveloped acres (excluding non-Clearwater acreage in New Brunswick and Saskatchewan).
Rubellite acreage.
Headwater acreage
With both companies having about 35,000 developed acres in the Clearwater play, and Headwater producing about 20,000 Barrels a day versus about 5,000 for Rubellite, it would seem Headwater has the better acreage. Since Rubellite is years behind Headwater and not yet relying on waterflood for most of its production, that may prove to be less the case over time.
Headwater has a market capitalization of CDN$2.2 billion or CDN$5,000 per Clearwater acre which excludes 200,000 acres of natural gas prone land in New Brunswick. Conoco paid CDN$2,000 an acre to acquire Montney lands from Kelt Exploration. I doubt the east coast Headwater natural gas lands are worth anywhere close to Montney lands, and backed out about $200 million for the New Brunswick lands and the market value of Headwater’s Clearwater lands comes to the approximately $5,000 per acre I have noted.
Rubellite has a market capitalization of about CDN$160 million or about CDN$600 an acre. While Headwater may own the rights to the better lands in the Clearwater, they are not eight times better in my opinion.
As a result, I put a value of about CDN$1,000 per acre on Rubellite lands which suggests the shares are worth about 70% more than their current price, other things being equal. If Rubellite’s acreage were worth $5,000 an acre, Rubellite shares would be worth over $20. More drilling is needed to have comparable data, so I am using $1,000 per acre for Rubellite to err on the side of caution.
This analysis is definitely superficial, but it drives me to the conclusion that Rubellite shares are grossly undervalued by the market.
As the National Association of Realtors in United States has as its motto “Under all is the land”. Investors often focus too much on current cash flow and too little on prospective acreage in deciding where to invest in resource companies. But ultimately, oil & gas company success depends on what lands they are licensed to drill.
Today I own a major position in Rubellite which I funded through gains on the sale of my Tamarack Valley and Headwater holdings. Since all three companies have deep value, time will tell whether that switch pays off or turns ut to have been foolish.
Please profile i3 Energy as well - I think it can be 2X - 3X
Always look forward to your next blog, it brings different prospective to the table.