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Is Kelt the next Tourmaline?

Also: an accretive acquisition by Legacy Oil + Gas (and more to come?) and some interesting insider buying at Surge

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

Jun 26, 2014

by Max Fawcett

Legacy Oil + Gas (TSE:LEG) made another acquisition this week, scooping up the privately-held Corinthian Exploration and its nearly 3,000 barrels a day of high netback light oil (along with a nice package of future drilling locations) for $225 million. By paying for the deal mostly in shares, the company deleveraged its balance sheet, and FirstEnergy analyst Cody Kwong thinks it will continue down that path going forward. “We expect the company will continue along this deleveraging trend with further 2014 events that could include further acquisitions, a potential joint venture deal and/or a GORR (gross-over-riding-royalty) agreement on its high netback, low risk assets.” The company intends to increase its capital program for the balance of 2014, and expects to have average production of 23,100 boe/d on the year, up from 22,150 boe/d. Exit production, meanwhile, is expected to be 27,350 boe/d versus earlier estimates of 25,250 boe/d.

McCoy Global (TSE:MCB) also completed a transaction recently, albeit a much smaller one. Still, the sale of its mobile solutions segment for approximately $14.75 million pleased analysts, including Canaccord which noted that the deal “leaves McCoy very well-funded to pursue acquisition opportunities or increase its dividend.” The deal also allows it to focus on its core tool business, it said. Canaccord reiterated its $8.25 price target and buy rating on McCoy’s shares. Surge Energy (TSE:SGY), meanwhile, saw some interesting insider buying of late that investors might want to take note of. After closing a $430 million acquisition of Longview Oil, CEO Paul Colborne bought 100,000 shares on the open market – even as his company’s shares were near their 52-week highs.

And finally, Brickburn Asset Management’s Martin Davies was on BNN’s Market Call yesterday, and he came with the requisite trio of top picks. Two of them, Crescent Point Energy (TSE:CPG) and Canadian Natural Resources (TSE:CNQ), were driven by the fact that the massive capital spending the two behemoths have done in the last two years (in CNQ’s case, $25 billion) should pay off in near-term growth in their production and free cash flow. But the third, Kelt Exploration (TSE:KEL), was a bit less familiar. Yes, it ticks some familiar boxes for investors – a familiar management team (they were the gang behind Celtic Energy) that has a history of generating outsized returns, exposure to a popular play (the Montney) and substantial insider ownership (approximately 20 per cent). But Davies dropped a comp on the company that ought to have gotten even the most jaded viewer’s attention. “It’s very similar to early days of Tourmaline [Oil], where the company was extraordinarily effective at watching costs,” he said. “Every time you save a dollar on these resource plays, these unconventional plays, you end up getting much higher internal rates of return in the long run.” The next Tourmaline? Sign me up.

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Oh, and speaking of which, BNN’s Frances Horodelski had a 10-minute interview with the famously media shy CEO of Tourmaline, Mike Rose. It’s worth watching.

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