Alphastox’s Moshevich Defines The One Thing Strong Energy Juniors Share

The implosion of oil and gas prices will flush out oil and gas exploration juniors with weak balance sheets and too much debt, says Etienne Moshevich, editor of The small-cap companies left standing, however, are poised to soar once the market begins to accelerate. In this interview with The Energy Report, Moshevich touts the benefits of motivated management teams and solid balance sheets for all companies in the energy sector, and singles out seven oil and gas juniors, plus a pair of uranium picks, with outstanding prospects come the turnaround.

The Energy Report: Are low prices for fossil fuels winnowing out the weaker juniors and enhancing the potential of stronger firms positioned to survive the downturn?

Etienne Moshevich: Yes, they most definitely are. When times were good, too many companies borrowed money against future cash flows, and now have no chance of paying the money back because of the downturn in the price of oil. Few companies reacted early enough—they are overleveraged and their shareholders are paying the price.

TER: What makes an energy company strong in the current pricing environment?

EM: Balance sheets. I am focusing my attention on companies with positive cash flows and low debt-to-cash flow multiples. These companies can withstand the volatility in the oil price.

TER: What makes you confident that the market for small-cap and micro-cap companies will improve in the near future?

EM: Our demand for oil isn’t going anywhere. While I understand there are many other energy sources out there, nothing can replace the world’s need for oil for the next 15 to 20 years. I see this as a huge opportunity for investors.

That said, I believe investors need to focus their attention on companies with top-notch management teams that have successfully built shareholder value, because in my mind, a lot of money could be made in the next two to three years by investors with time and money on their side. I don’t know when the market will turn, but it ultimately will, and when it does, many of the companies we see today won’t be trading at such low valuations.

TER: Who is drilling successfully in the shale oil patch?

EM: I follow Blackbird Energy Inc. (BBI:TSX.V) very closely. The stock is up more than 50% this month, and I believe this is only the beginning.

There are a couple things that make this company so special. The first, I must say, is CEO Garth Braun’s passion. Braun’s vision has translated into his assembling a team of equally passionate and industry-leading professionals who appear to not be afraid to build a large, successful company.

Blackbird Energy Inc.’s wells are in a position to make money; the company is truly ready to pop.”

The Blackbird team has positioned the company in a Montney fairway that, only two years ago, was mostly undeveloped, but today stands as one of the most prolific liquids-rich fairways in North America. Why does being in a liquids-rich fairway matter? It comes down to things everyone knows: economics and viability. Blackbird’s 47 sections sit in a region where wells, by my calculation, still produce a 15% internal rate of return (IRR) at $50/barrel ($50/bbl) oil and $3/Mcf. These economics will go up exponentially as oil prices begin to rise, but even at current commodity prices, Blackbird’s wells are in a position to make money, which can’t be said for a vast majority of resource projects in the world.

Blackbird’s very calculated and deliberate moves have also gained the attention of very well-respected Canadian oil and gas analysts such as Dan Payne at National Bank, who just picked up coverage of Blackbird with a Speculative Outperform rating and a $0.70/share price target. In his report, Payne lays out that, with successful results from its Upper and Middle Montney wells, Blackbird will unlock unrisked value of $1.18 billion ($1.18B).

Another reason Blackbird is set to outperform comes down to its torque. Blackbird is currently completing two Montney wells that, if successful, will prove up more than 20 sections of land from a geological standpoint. Once this has occurred, Blackbird is off to the races, being one of the only junior companies with a large, 100%-owned land position that is currently 100% unbooked. On 20 sections of land alone, Blackbird can deploy approximately 240 wells—four wells per zone for each of its three zones. If we go one step further and add a net present value discounted at 10% (NPV10) of $4 million ($4M) per well, we arrive at $960M in value. This company is truly ready to pop.

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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