How Much is TriOil Worth?

PetroBakken Energy recently announced it acquired 17.3% (11.1 million shares) of TriOil Resources??(TSXV-TOL). Buying up the rest of the company is only a matter of time. How much time ? that would be the unknown variable but for how much money? Well we can certainly crunch some numbers here.

TOL is a perfect strategic fit to PBN as both companies have complementary assets in the Lochend Cardium play. They have partnered on wells and infrastructure on joint land holdings. TriOil would add 3,600 boe/d (70% oil) and add more than 100 net Cardium drilling locations to PetroBakkens inventory.

70 net sections at Lochend

70 net sections at Lochend

Investors got all excited with the news pushing TOL’s stock about 15% from $2.70 to over $3.10. But I remain skeptic; I don’t believe PetroBakken can afford to swallow TOL right now. There’s also no guarantee the takeover will happen this year. For example, Crescent Point Group took its sweet time before it acquired Reliable Energy even though it was financially capable of doing so at any time.

While Pengrowth Energy is another potential acquirer, I don’t believe they can afford a bidding war since their stock is currently drilling into lower price levels.

Of course, I could be wrong, but in this pipeline constrained market there’s no need to hurry. I will wait until the excitement dies and potentially take a small position during the summer doldrums.

Let’s see what TriOil Resources TOL.V 2.58 [0.00] might be worth in the event of a sale. First, we’re lucky there’s a precedent with Equal Energy selling its Lochend assets back in November 2012. Equal had sold 525 boe/d and 8,100 acres to Pengrowth Energy for $62 million.

That comes out to $118K/boed if we value the land at $0. If we assigned $1,000 per acre for land, we get $8.1 million for land and $103,000 per boe.??TriOil has about 44,800 net acres prospective for Cardium oil at Lochend with ~1,300 boed of production from 20 gross wells according to the latest company presentation.

Scenario 1:

Lochend production (1,300 boed) at $118,000/boed and $0 for land

Other production (2,300 boed) at $75,000/boed and $0 for land

We get $153.4M + $172.5M= $325.9M $30M (forecasted 2012 exit debt) =295.9/64M produces a value of $4.62 per share

Scenario 2:

Lochend production (1,300 boed) at $103,000/boed and $1000/acre for land

Other production (2,300 boed) at $75,000/boed and $0 for land

We get $133.9M + $44.8M + $172.5M = $351.2- $30M (forecasted 2012 exit debt) = 321.2/64M shares produce a value of $5.01 per share.

This is obviously a very rough estimate that provides a good idea of what TriOil could sell for. Non-Lochend production could sell for less since we’re in a buyer’s market right now. But even if the non-Lochend production goes for $50,000/boed, Scenario number 2 still produces about $4.10 per share for a minimum upside of 30% from current prices ($3.10).

The value most likely lies between $4 and $5 per share and potentially more if the transaction happens in a better market. Of course a better market implies the pipeline constraints we keep hearing about are no longer an issue. Not likely for 2013 if you ask me.

In the end, TriOil will sell for the amount a buyer is willing to pay for it. If that buyer is not PetroBakken, it will make things much more interesting as investors will likely receive a better than expected premium for their shares!

??How do you think the TriOil scenario will play out? What is your takeover target price ?