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FirstEnergy bumps up target on Bankers Petroleum

Also: Sentry Investments portfolio manager Mason Granger brings three top oil and gas picks

When he was younger, Max Fawcett wanted to make a mint in the markets. Now as the managing editor of Alberta Venture he gets to write about them. Close enough, right? He can be reached at mfawcett@albertaventure.com

Feb 21, 2014

by Max Fawcett

Shares in Bankers Petroleum (TSE:BNK) have seen a furious rally over the last year, but FirstEnergy clearly thinks there’s still more room left for them to run. In a note release today, it said the company has increased its PDP (proved developed producing) reserves by 59 per cent, while increasing its 1P and 2P reserves by five and three per cent. “Based on the 2013 year-end reserve report, we have increased our core NAV estimate by nine per cent to $7.34 per share. Bankers also updated 1Q14 operations, including year-to-date production of 19,700 bbl/d that is in line with our estimate of 20,000 bbl/d. The sixth drilling rig is in Albania and is on track to commence drilling in 1Q14e. We have increased our target price on Bankers Petroleum to $7.25 per share with no change to our top pick ranking.”

Meanwhile, Sentry Investments portfolio manager Mason Granger was on BNN’s Market Call yesterday afternoon, and as always he came armed with a few interesting ideas. From a macro perspective, he says global oil markets are tighter than some people might think, and that $100 could act – in the near-term, anyways – as a floor for global oil prices. He’s been using the recent spike in natural gas prices to trim some positions in gas-weighted names, but says the strength in the underlying commodity could be here to stay given that there are concerns that there isn’t enough supply to bring inventory levels to where they need to be for next year’s heating season.

His top picks were Alexander Energy (TSXV:ALX), a company that’s about to be transformed into the third iteration of the Spartan brand. “We consider these guys to be best-in-class managers,” Granger said, “and they’ve established that by their track record.” Alexander, of course, is a recapitalized shell that former Spartan Oil executives used to make an all-stock offer for Renegade Petroleum (TSXV:RPL), which they will turn into a light oil, growth-oriented company without a dividend. But, Granger said, there’s actually a better way to get into the story than by buying Alexander shares – although he thinks that’s a perfectly decent strategy as well. “In our view, the best way to play this would be to buy Renegade shares – in fact, we’ve been selling Alexander to buy Renegade simply because a spread had opened up between the two based on that all-stock transaction and the share ratio.” Granger thinks once the share conversions and name change have taken place, investors could see the company grow production by 30 per cent over the next year.

He also liked Canyon Energy Service (TSE:FRC) for its exposure to the much-discussed LNG build-out in B.C. and its pristine balance sheet. “We’ve got companies like Petronas that are going to spend $5 billion over the next six years developing unconventional resources in Western Canada. A company like Canyon is going to benefit substantially from that.” Finally, there’s TORC Oil and Gas (TSE:TOG), which Granger said makes up a substantial weighting in his fund’s portfolio, in part because of its assets in the Cardium and southeast Saskatchewan but also in part because of the fact that it’s Alberta Bakken assets might not be getting the attention they deserve. “We think the stock price is not ascribing a lot of value to that. It’s going well, and we’ve got a lot of confidence that it’s going to be a commercial play. Very sustainable dividend and low leverage, so it’s got all the hallmarks of a company that we’d own.”

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