Stock Trades: Sold TriOil Resources, Bought Terra Energy

Today, I sold 1,000 shares of TriOil Resources (TSXV:TOL) at $2.98.

In at $2.95, out at $2.98, profit=??+0.34%??after commissions.

I also bought 12,500 shares of Terra Energy (TSX:TT) at $0.27.

Trade Commentary??

This is not profit taking on TriOil, this is simply rotating money into Terra Energy which so far has returned me more than 30% today (on paper). The stock soared following a news release announcing asset sales for $80 million which leaves them with under $10 million in debt if my calculations are correct. That’s a far cry from the $94.5 million they carried at the end of Q2.

Terra Energy was first mentioned by fellow investor Lee Roth. My colleague Peter Norris followed-up by contributing the post??Terra Energy ‘ Unlocking Value from an Asset Rich Junior which highlighted the high risk high reward opportunity. With today’s announcement, the risk has been greatly reduced which is why I jumped in. Big thanks to Peter and congratulations to those that held and bought in the teens.

Now that the debt has been almost eliminated it’s time to enjoy some number crunching on Terra. Let’s start with EV/BOED where the company is trading right now at less than $10k/BOED based at a share price of $0.35, 5,000 boe/d of production and $10 million in debt.

That is obviously VERY cheap, there’s an easy double from here simply by doubling the EV/BOED. Even the WORST NG weighted company in my listing (WDN.TO) is trading at ~$17,000/BOED!

However, that is not the number I trust the most, I need precise operating costs going forward for 2013 to accurately evaluate the upside potential. I will update this post when I get more information.

[Update]??Q3 confirmed what I suspected all along, their high operating costs result in horrible netbacks. At $3.30 per mcf, TT will barely realize $5/barrel in profit. In my opinion, ~$0.35 per share would be a fair value at 3.5x CFPS. I will certainly be looking to exit around that mark.

The next catalyst for the stock price is announcing the closing of all dispositions.

Where do you think the stock will be in December?