Winstar Resources initiated a strategic alternative process back in Q3 of 2012. Almost a year later, it’s payday! Or so you’d think unless you bought your shares below $2; the company has been sold at a disappointing price in my opinion.
I’ve written about Winstar Resources WIX.TO 2.50 [+0.05] before, I like the company and have had several successful trades including the last one with a 46% gain. I also traded around a small core position with the company’s sale in mind having my average at $2.30 per share.
The sale finally materialized and Kulczyk Oil Ventures (KOV) is taking over the Tunisian player. The way the sale will work is that investors can either opt for $2.50 in cash (a max of $35M to be paid in cash) or take 7.555 KOV shares for each WIX share implying a share value of $3.11. This is followed by a 10:1 consolidation and a new entity listed on the TSX under the name of Serinus Energy.
Winstar is currently trading below $2.30 per share, this means ??that right now I did not even break-even with the sale of the company. While Im disappointed with the transaction KOV’s CEO is of course quite happy with the arrangement since he’s taking over a company with a NAV of $6+ for $2.50?
End of 2012 NAV
I’ll believe the $3.11 per share valuation when I see it and it might take a while as closing is expect in mid-June 2013. Then follows the share consolidation + name change.
I am not familiar with KOV, so I took a quick look at their presentation. They’re a junior producer listed on the Warsaw stock exchange??with assets in Ukraine, Syria and Brunei. Syria is a pretty useless place to have assets in right now, Brunei is interesting and Ukraine is where they have successfully ramped up their production.
WIX+KOV Assets
Serinus will have about 4,760 boe/d of production including some ??1,700 boe/d from Winstar. Of course, KOV’s CEO gave a bombastic speech on the conference call about aggressively developing Winstar’s assets and doubling production by 2015 (from 1,660 to 3,000+ boed). I am a bit skeptical on that one, Winstar kept getting bogged down by one strike after another, and I don’t expect things to be any different in the near term. But like him, I do believe in the ‘long term’ prospects of the country, the challenge is trying to define a time frame for these words!
Besides having high expectations for Tunisia, management has done a great job quadrupling??natural gas production in Ukraine since 2010 where gas sells for over $11.00/mcf.
So what to do now, sell my shares at break-even or wait for the $3.11 to materialize? Well, I decided to wait for 3 simple reasons:
- I can always ask to be paid in cash, so $2.50 per share is a 9% return.
- Limited downside, the company has no debt and??estimates??cash flow at $60M for 2013.
- Two high impact wells in Brunei will be drilled in the May-July window right around the closing of the deal. ??KOV has 90% WI in 278,6500 acre block with a 50% chance these 2 wells could de-risk more than 60 million boes.??Brunei has a long history of substantial??production, a well-developed??infrastructure and a stable business??environment so it might be worth the punt (even-though??KOV??labels these 2 wells as low risk).
The odds of realizing a higher share price within 2 months are looking good. The Brunei wells are a bonus and theres no risk of getting punished for excessive debt since there isnt any. The assets are geographically more diversified so the overall risk level on KOV is lower than WIX. So whats an extra 2 months in the grand theme of things? Ill wait it out as Winstar Resources slowly fades away.
What will you be doing with your WIX shares?
