A SAD ENDING: SkyWest Energy and Marquee Petroleum To Combine

First, let’s make one thing clear here, we SKW shareholders got shafted and there’s no way this fact can be embellished. What happened to Disney movie endings where they live happily forever after? Well it looks like it takes more than assets to make us look attractive enough for a prince and the element we missed in all of this was management. Management failed and in my opinion one reason they failed is because they did not have enough skin in the game. With a low 6% distributed insider ownership, where’s the motivation to succeed? So much for value creation, at least we got a “premium” to our share price, the all time low price that is!

value creation at work

SkyWest Energy – Value Creation at Work!

The deal is going down for about $0.30 per share so there’s no point to sell at the all time low. Kudos to Marquee Petroleum’s CEO for acquiring a company for a fraction of its NAV. This guy certainly knows how to build value for his shareholders.

Mr. Thompson, president and chief executive officer of Marquee, stated: “Marquee is very pleased to announce this transaction, which simultaneously accomplishes several steps in building value for Marquee shareholders.”

Lawrence Urichuk, president and chief executive officer of SkyWest, noted: “This transaction is very exciting for both Marquee and SkyWest shareholders.”

Honestly, I am not that excited and I would have loved to be on the “building value for shareholders” team. Nonetheless, maybe the first glimmer of light resides in Marquee’s CEO ability to build value. Who are these Marquee guys?

Richard ThompsonPresident & CEO Hany BeshryExecutive VP, Exploration
Executive VP & Director, Cequence Energy Ltd

VP Exploration, Cyries Energy Inc.

Manager Geophysics, Cequel Energy Inc.

Chief Geophysicist, Cypress Energy Inc.

VP Exploration, Cequence Energy Ltd

Manager Geology, Cyries Energy Inc.

Senior Geologist, Cequel Energy Inc.

Geologist, Cypress Energy Inc.

It looks like we got ourselves a track record in these guys and that’s a start. Maybe we can count the change in management as a positive outcome? I hope I am not being too harsh on SKW management, but when you fail to deliver it’s the penalty box for you.

On to the deal, Marquee is bringing to the table a measly 200 boe/d but lots of land in east-central Alberta (Michichi & Provost). Let’s focus on this land base since this is going to be the workhorse of the company for growth and not the Cardium. MQE has 68 net sections of land with 100% WI prospective for Viking, Mannville and Banff oil.

mqe presentation

Src – MQE merger presentation

Obviously, the new company looks very interesting in terms of oil prospects, except that it’s partially built at our expense as SKW shareholders. When we spoke yesterday, SKW CEO had a lot of positive things to say about the new CEO and his VP of exploration. He said its business as usual if the deal was voted down. It seems to me SKW management threw the towel as debt might be strangling growth unless they either turn to the market or sell some assets such as deeper rights (not a lot of options really).

If we vote against the deal, there’s no guarantee another white knight will show up. I always hoped for BXE or PWT to be the acquirer but they both have a large Cardium inventory of their own to go through. So the outcome of voting against the deal might not outweigh the benefits of voting for it. Let’s not kid ourselves; it will take a LONG TIME to recoup SOME of our losses as I expect further dilution once the deal closes. How will they fund an aggressive drilling program when they start off with $18M in the hole?

The answer is simple, the new company has billionaire Ned Goodman backing the team up. He subscribed for 66% of the last private placement for Marquee Petroleum. For sure, MQE will be able to secure financing on way better terms than SKW would right now. How much better? The resulting dilution will answer this question.

The new CEO might be capable of taking this company to a new level since the focus is on wells that are cheaper to drill compared to the Cardium and payout in 7 months or less in some cases. I would expect a high growth rate following this strategy. Maybe it is worth giving these guys a chance?

I won’t be selling my shares just yet, they want 66% of the votes? Come and get it. I have not made up my mind on the vote, it’s a tough call but it could have been easier if we were valued closer to $0.50.  Time to sit back and watch the share price manipulation!

A sad ending or a new beginning? What do you think?

*Here’s a link to the new merger presentation hot off the printing press: Click here

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