TORONTO (ResourceInvestor.com) -- Bow Valley Energy (TSX:BVX) has been around for some time but has never really broke out of its range, possibly because most of its projects seem to be of a long-term nature and fairly capital intensive. All that is now changing as production levels ramp up and money is no longer hard to come by.
Bow Valley has seen its share rise over 150% in the last year, and apart from a rising oil price, there appear to be other sound reasons for a move. First quarter results came in with 13 cents of cash flow per share, for an annualised per share value of 52 cents. With the stock now trading in the C$3.25 range, BVX may seem fair or even expensive at first blush, but the company has quite a compelling story to tell.
Current production is in the 4000-boepd range and is split equally between fields in Canada and the UK, with costs coming in under $10 per BOE and a respectable debt to CF ratio of about 0.6X. In Canada the company is focused on gas, and in the UK its projects involve light oil. Interestingly, very little is currently being produced from Bow Valley's large 18-million-barrel reserve base.
The company believes that it can achieve production levels north of 10,000 boepd by 2008 by building on its full cycle exploration program in Canada and developing its UK portfolio. Bow Valley expects that on an annualised basis, fourth quarter 2006 production rates will be 8,000 boepd, only a year and a half from today. Significantly, the growth envisioned is not of a particularly risky nature.
Better still, the company thinks it can triple cash flow in its UK operations on only double the production, due to a high netback and premiums on light oil.
According to BVX President and CE Robert Moffat, "Once we have those fields on stream, we'll take the cash flow and take a more aggressive exploration effort in probably a 2006 or 2007 timeframe."
BVX told the CAPP conference that the company has an enterprise value of C$225 million, and using an oil price of $40, is currently trading at NAV. With a market capitalisation just north of C$200 million, it is refreshing to note that management has a significant stake, about 20% of the company.
Bow Valley also said that it does not intend to dilute its longstanding and patient shareholders with equity offerings. The company has recently negotiated a debt facility of $50 million with the Bank of Scotland to help finance the development of its North Sea assets, none of which BVX operates themselves.
The company has a capital budget of C$45 million for 2005: C$25 million is to be spent in Canada for the drilling of 30 wells, and the other C$20 million in the UK for the Blane (12.5% interest) and Enoch (12% interest) development projects. The expenditures will be financed from a mixture of cash flow and debt.
Going forward, Bow Valley wants to keep its Canada/UK balance. In Canada, the company aspires to grow its Canadian E&P program to 30+ wells per year. In the UK, it is looking to continue developing existing properties, consolidate its interests or buy more, purchase more development projects, and become more active in the exploration arena. BVX said that it would like to build an exploration inventory of 10-15 prospects in the UK, which could support drilling 3-5 exploration wells per year, and would focus on 50+ million barrel targets.
If Bow Valley is successful in executing its ambitious plans for growth and the price of oil remains buoyant, investors may well look back on today's close of C$3.25 in a few years and think that they missed a real bargain.
