-
you're reading...
Investing

BNK Petroleum – exposure to shale gas (TSX.V: BKX)

Wait a minute.  The other 2 companies that you have blabbed about are all quoted on the NYSE and here you go posting stuff about a company that’s traded on the Canadian Venture Exchange?  Are you mad?  Yes – I guess I am.

But before you think I have completely gone boinkers, I would like to re-iterate that I personally enjoy higher risk investment activities, perhaps bordering on the speculative and, this company actually fits the bill.  In fact, it fits the bill a lot less than what I would consider speculation.  As you will see, BKX is debt free, it is trading at its 2 year low and it actually will be generating cash – as it has before it sold its producing part to an Exxon subsidiary for $140M – now you tell me which junior “explorer” has that under their belt.

BNK Petroleum is a company that has shale-gas exploration properties in the US as well as possible exploration concessions in a few countries in Europe, including Poland.  As far as shale gas in Poland is concerned, I will not be discussing why Poland, because if you have not heard Poland and shale gas in the same sentence and you’re looking at investing in BKX, than you should think twice about investing in BKX before doing any research of your own.

First, some property information taken from TDWaterhouse:  BNK Petroleum Inc. is engaged in the exploration, development, production and marketing of crude oil, natural gas and natural gas liquids. Through BNK Petroleum (US) Inc. (BNK US), it has has approximately 12,000 net acres of oil and gas leases, which comprise the Tishomingo Field, in the Ardmore basin of Oklahoma. BNK also holds some acreage in the states of Alabama, Texas and New York. As of December 31, 2011, BNK’s production came from the Tishomingo Field. The Company’s Tishomingo Field produces oil, gas and natural gas liquids. In April 2013, BNK Petroleum (US) Inc. sold Tishomingo Field, Oklahoma assets other than the Caney and upper Sycamore formations to XTO Energy Inc., a subsidiary of Exxon Mobil Corporation.

This sale, as mentioned above was for $140M putting the company into a debt-free zone with plenty of capital for exploratory operations in its Caney and upper Sycamore formations as well as its locations in Poland.

Recently, BNK Petroleum has released an operational update on its exploration in the Caney formations and here are the results:

  • Fracture stimulation at its Barnes 6-3H well has been completed
  • Although only about 11% of the fracture fluid has been recovered, the well is already flowing back oil at a rate of 120 BOPD (barrels of oil per day).  As a comparison, Barnes 6-2H did not start producing oil until 24% of the fracture fluid has been recovered
  • Fracture stimulation in progress at its Dunn 2-2H well
  • Drilling to start in Hartgraves 5-3H

It was previously assumed that the Caney formations provide a better situation than the Tishomingo field which was sold to Exxon.  With the Tishomingo, revenue from Q2 2012 – Q1 2013 was $21M.  The expectation is that the Caney formation will provide more than what Tishomingo produced.

After selling their Tishoming property bringing BNK Petroleum into a debt-free zone and with a projected revenue of at least $20M if not more, the company is more than well positioned to participate in further exploratory activities in the US as well as its most promising location – Poland.  BNK Petroleum has properties in one of the richest shale-gas ground formation in Poland – namely in the north by the Baltic Sea.  As you will be able to see from the chart which I will be posting below, the company’s stock reached a high of $6.00 / share back in 2011 when the “talk-in-town” was how Poland had the largest shale gas reserves in all of Europe, thus possibly allowing the EU to be independent from Russian gas and instead import it from Poland.  That excitement actually died off because there was no progress made in receiving a permit for the horizontal drilling in one of their most promising wells – namely the Gapowo well.

The lack of permits was actually due to the fact that the bureaucracy in Poland was such that a company had to wait about 1,000 days on average to get such a permit.  With recent changes enacted by the Polish government, to come into effect over the next 2 weeks, such a time period is shortened to about 1-2 months.  The hope is that BNK Petroleum will be able to drill in the Gapowo well starting in the Fall.

Taking a look at the company’s book value ($1.21 / share) as compared to what it is currently trading at ($0.89 / share), it is a no brainer that the market will eventually recognize the true value of BKX since it is a debt-free junior producer sitting on potentially a “gold-mine” of shale gas in Poland.

But there is more.  How did I find about this company in the first place?  Well, I said to myself – let’s look where the smart money is invested.  I did some research and as it turns out, George Soros (the wealthiest Hungarian) actually has a 20% stake in BNK Petroleum which he paid for at an average of $2.50 / share.  Further to that, a present director of the company is retired general of NATO forces Wesley Clark.  If these guys are in on it than that in itself should speak volumes.

Furthermore, since August 2012, there has been $110,000USD of insider purchases of shares made by directors and officers of the company.  If we look through 2011 and early 2012 – we will see that the net purchases totalled about $700,000USD – and, get this:  not a single sale.  If the insiders are accumulating than that is also another good sign.

Here is the chart for the past 2 years or so of the company:

BKX Chart

BKX Chart

As you can see, it is currently trading at its absolute lowest of the past few years.  Also, analysts at TD Waterhouse have the stock pegged at $1.75 / share prior to the news release about its operational update.  I do expect that this will change and the stock will be upgraded within the next few weeks.  And finally, there are 4 analysts following this stock and their rating is “Buy”.

I personally believe that the stock market will recognize within the next 2-4 weeks this last positive news release and it will peg the stock at about $1.20 – $1.30 / share until there is further progress made in Poland.  if that provides positive results than we are looking at probably hitting the same highs as were hit in 2011.

As a full disclosure, I do own a significant (for a retail investor) amount of shares in this company.  Also, as a disclaimer, do not base your purchasing decision on this amateur-style review.  I am not a professional stock broker, nor intend to be and any money that you make or lose by investing in this stock is your own decision and I am not responsible for any outcome.  It’s your money, not mine that you’re playing with.  I seek safe harbour.

Advertisements

About Michael W.

Project Manager for a large financial services company. Non-denominational closet investor. Entrepreneur running a small shop with a big idea

Discussion

One thought on “BNK Petroleum – exposure to shale gas (TSX.V: BKX)

  1. Outstanding post but I was wondering if you could write a litte more on this topic?
    I’d be very thankful if you could elaborate a little
    bit more. Appreciate it!

    Posted by Ivy Catello | September 27, 2014, 03:47

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: