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Petrobank makes its move

The long-awaited spin-out of its PetroBakken shares is announced

Oct 30, 2012

by Max Fawcett

Hurricane Sandy has shuttered markets in New York for a second consecutive day, and while there were rumours circulating last night that the exchange was under three feet of water (not true, it turned out) officials are hinting that they’ll be open for business tomorrow. And, not surprisingly, there’s someone out there making a prediction about how it’ll open, and the effect that hurricanes have on the performance of stocks.

This is, of course, a textbook example of confusing causation and correlation, and the gentleman in question – Sam Stovall, the chief investment strategist at a firm called S&P Capital IQ – admits as much. “Individually, the market’s performance following major hurricanes has been uneven, as equities are more likely driven by wider-reaching global events than localized natural disasters,” he wrote in a note. But he then went on to provide data supposedly supporting the theory that markets tend to do well after hurricanes, writing that the S&P 500 has posted median gains of between three and six per cent in the one-, three- and six-month periods following the 13 most destructive hurricanes to hit North America since 1965. Okay, then.

In more serious news, Petrobank (TSE:PBG) announced the long-awaited spin-out of its PetroBakken (TSE:PBN) shares in a corporate reorganization that will take effect at the end of this year. Under the terms of the arrangement, shareholders of Petrobank will receive one share of New Petrobank, and somewhere between 1.06 and 1.10 PetroBakken shares (RBC Capital Markets has split the difference and estimated that shareholders will get 1.08 ). Petrobank shares shot up on the news, which isn’t particularly surprising given the discount the market is currently pricing into the stock – if one adds up the PetroBakken shares and the cash on Petrobank’s balance sheet (and assigns no value whatsoever to its THAI technology or its heavy oil land holdings) it’s trading at an effective discount of more than $3 a share to its intrinsic value. It’s reasonably safe to assume that as we get closer to the reorganization date the market will fill that gap.

Talisman Energy (TSE:TLM) delivered less exciting news to its shareholders, reporting a quarterly net loss of $731 million that was mostly the result of asset write-downs in some of its underperforming segments. “The net loss in the quarter is largely the result of $443 million in after-tax impairment charges,” new CEO Hal Kvisle told the Calgary Herald, “reflecting the impact of the company’s planned exit from Peru, ongoing uncertainty with the Yme development in Norway, the prohibitions on shale operations in Quebec, and declining reservoir performance at Rev in Norway.” He promised a more tightly focused capital plan for 2013, and more emphasis on profitability. “Our objective is to fund our most promising and profitable investment opportunities, focusing on near-term cash generation while keeping our balance sheet in good shape.”

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