# Rock Energy (re.to)



## rknigh2 (Jun 5, 2012)

I have been looking at this company for a couple months now. On the outside it looks good. No debt, growing production, trades at half PBV. I missed the run up since Dec, but even then it currently is trading around $16000/boepd (which appears to be one of the cheapest).

I guess I'm just looking for other opinions, since there is very little to read on this company. Also, more generally, at what boepd should a driller be turning a profit? From what I see, the expectation is for the smaller players to run in the red for a while, but at what point does it become a bad sign?


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## Feruk (Aug 15, 2012)

I get $18K/boed; still dirt cheap. It's a crap chute to be honest. On one hand, they are cheap and oil weighted. On the other hand, they have just recently transitioned to an oil weighting. Their previously high gas weighting is prolly what gave them such a brutal netback last year. Also, their Mantario property scares me. They claim 27 sections of land, but right now only ~2.5 of those have production. This may be the limit of the pool based on their results of their outer wells, but that's uncertain. Their other assets don't interest me. As for BV, I could care less. It's just not an interesting enough group of assets for me to invest, even at fire sale prices. I need to see more growth potential, which may be where their exploration projects come in. For now though, I'm staying on the side lines.

Your other questions are tougher to answer. There is no magic boed number. Totally depends on the assets and how much capital spending on facilities still has to be done. For example, NVS has a similar boed but they run positive. However, totally different assets. What I watch instead is debt/FFO. When I see that rising, or if it ever gets above 2:1, I'm out.


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## rknigh2 (Jun 5, 2012)

Feruk said:


> I get $18K/boed; still dirt cheap. It's a crap chute to be honest. On one hand, they are cheap and oil weighted. On the other hand, they have just recently transitioned to an oil weighting. Their previously high gas weighting is prolly what gave them such a brutal netback last year. Also, their Mantario property scares me. They claim 27 sections of land, but right now only ~2.5 of those have production. This may be the limit of the pool based on their results of their outer wells, but that's uncertain. Their other assets don't interest me. As for BV, I could care less. It's just not an interesting enough group of assets for me to invest, even at fire sale prices. I need to see more growth potential, which may be where their exploration projects come in. For now though, I'm staying on the side lines.
> 
> Your other questions are tougher to answer. There is no magic boed number. Totally depends on the assets and how much capital spending on facilities still has to be done. For example, NVS has a similar boed but they run positive. However, totally different assets. What I watch instead is debt/FFO. When I see that rising, or if it ever gets above 2:1, I'm out.


I guess that is why there is such a discount. Mantario is more than 50% of the production and the D+A wells to the south/east may be cause for concern. Having said that, they still have quite a bit to exploit from the current pool and the initial success to the north could be supplemental to further exploration at the very least. With no debt, recovered WCS price, and satisfactory cashflow, I'm probably nibbling at it under $1.30 (also the $2.50/share of proved reserves gives me a sense of comfort - potential take out price?). I appreciate the note on watching the FFO as they start working into the $45m bank line. If the ratio starts moving too quickly I'll have to look to get out. 

Thanks!


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## rknigh2 (Jun 5, 2012)

Well this has been a good 12month return my tfsa enjoyed. +500%

Still holding but 25% was moved into another undervalued producer, qxp on the venture. Here hoping for another 500%


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## londoncalling (Sep 17, 2011)

Congrats! That is impressive. Any further insights for a curious observer?


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## rknigh2 (Jun 5, 2012)

RE.TO isn't crazy cheap anymore at 58,000 per boepd. But still not the most expensive. Debt is very low and management has been very successful growing production and reserves.

3 major positives are the Viking light oil potential, wcs differential still has room to improve, and management is expecting a 50% increase to netbacks in 2014.

That being said I've taken a chunk and bought QXP.V which looks more like rock 12 months ago.


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