Is Twin Butte Energy Ltd. (TBE) On The Operating Table?

Page 1 of 2

“The best thing that happens to us is when a great company gets into temporary trouble…We want to buy them when they’re on the operating table.” – Warren Buffett.

Twin Butte Energy Ltd. (TSE:TBE) is a yield play from the energy industry that is focused on large original oil in-place conventional heavy oil exploitation. The stock hit some speed bumps a few days ago and has plunged 25% since then on unusually high volume. Will the knife keep falling? To find out, let’s take a close look at the Strengths, Weaknesses, Opportunities, and Threats now that the blood is in the streets, because this may be a big buying opportunity.

Strengths

Tax Pools: The company has $580 million in tax pools. To an acquirer, these tax pools can shield $145 million of income at a 25% tax rate. So a potential acquirer would have to pay $0.58 per share for buying only the tax pools.

Production Growth: Production has been growing consistently during the last 6 years, and rose from approximately 1,000 boepd in 2006 to 19,200 boepd in December 2012.

Low Risk and Low Decline Wells
: The company has a low risk, heavy oil inventory of over 700 net wells that provides 5-6 years of high capital efficiency. Additionally, the base annualdecline for these wells is as low as 28% in a concentrated asset base around Lloydminster with year round access.
Low Cost Wells with Short Payout Period: The average vertical well cost ranges from $515,000 to $615,000 with an average initial production of 40 – 80 boepd, average reserves per well of 45 – 80 mboe, and a short payout period of 0.8 years.

Funds from Operations (FFO) Stability: The volatility of the operating cash flow for 2013 is significantly reduced because the company has a strong hedging position in place.

Aggressive Bidder: Twin Butte was the most acquisitive Canadian energy company in 2012 after Crescent Point Energy Corp (TSE:CPG), which acquired 6 smaller producers in 2012, expanding its core areas which extend from Canada (Beaverhill Lake, Viking, Bakken formations) to the USA (Uinta Basin). Twin Butte has also been on a consolidation spree and has acquired 5 peers (SwimmingEmergeAvalonWildmereWaseca) in the last 12 months, significantly growing its drilling inventory, which currently is estimated to be over 700 net heavy oil wells.

Annualized Debt/FFO < 2: The company hasn’t any debt issues, and year end 2012 net debtwas $205 million, or 1.4 times Q4 annualized cash flow.

Hefty Dividend: The shareholders are handsomely rewarded by the corporate dividend policy on a monthly basis, as the current annual yield is 8.5%. It is also worth noting that the dividend isn’t at stake because the all-in payout ratio (dividend and capital expenditures) will be maintained at 100%, ensuring the dividend sustainability.

Target Price: The average target price from the 15 analysts who cover the company is $3.46.
3 High-Yielding Retirement Savings Stocks That Pay Monthly Dividends
Weaknesses

Performance Issues: Since late December 2012, Twin Butte has been hampered by a number of operational and reservoir performance issues. Significant downtime was experienced early in January on the heavy oil operations, as the Lloydminster area encountered cold temperatures which created freezing, and run time-related issues on a number of the wells. The wells at Primate Property lost inflow or were experiencing high water cuts. Primate was one of the company’s best performing properties in 2012, but over the last 40 days has seen its production drop from a high of 3,400 bbls/d, by 800-900 bbls/d.
Page 1 of 2
Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Best Selling Comic Books of All Time

A-list Actors who Sabotaged Their Career

Rappers With a College Degree

The Best Jazz Albums of all Time

The Most Influential Jazz Musicians

The World’s Most Famous Photographers

The Best Oscar-Winning Songs

Most Influential Choreographers Ever

Most Expensive Department Stores in the World

The Most Expensive Stolen Paintings in the World

The World’s Most Expensive Teas

Top Oscar Record Holders

The Most Expensive Flowers in the World

Countries With a Booming Film Industry

Most Expensive Cupcakes in the World

Uncommon European Escapes

The Most Stolen Artists in History

Best Travel Destinations in Australia

World’s Most Expensive Musical Instruments

World’s Most Famous Animals

Most Expensive Cakes in the World

Most Expensive Kosher Champagne in the World

Most Expensive Kosher Wine in the World

The Most Surprisingly Dark Fairy Tales

Most Popular Travel Destinations in Asia

The 10 Most Expensive Dresses Ever Worn to the Oscars

World’s Most Visited Art Museums

Best Countries for Photographers to Work in

Best Paid Jobs in the Film Industry

The Most Renowned Recovered Paintings Ever

Child Stars That Turned out Just Fine

Books That Were Banned in the Past Century

World’s Richest Dancers

Best Remedies against Bad Breath

Foods That Improve Your Skin Texture

Best-Selling Children’s Books of all Time

Foods That Boost Your Libido

Best-Selling Books of all Time

The Most Expensive Academy Awards Jewelry in History

Most Expensive Japanese Restaurant In New York City

The Best B-Boy Movies

Most Awesome Hip Hop Documentaries

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 129% in 2.5 years!! Wondering How?

Download a complete edition of our newsletter for free!