Ryland Oil Corp, Oilpatch Buyouts Show Raw Land Can Be Worth $Millions
Companies / Company Chart Analysis Jun 24, 2010 - 12:10 PM GMTToday’s buyout of Ryland Oil (RYL-TSX) by Crescent Point Energy (CPG-TSX) is a good example of how large “resource plays” can get valued by investors. CPG paid $121.8 million, or roughly $0.45/share for Ryland.
But back in 2006, when the mania of the emerging Bakken oil play in North Dakota and southern Saskatchewan was at a peak, Ryland soared from 10 cents to $4 in months.
A “resource play” is the industry term for a property that is large and has the potential to host many “repeatable” wells – have the same production as the initial discovery well – dozens or hundreds of low-risk wells.
The new shale plays in North America are “resource plays”. And the Bakken, the Cardium, the Viking, the Shaunavon formations in Alberta and Saskatchewan are also considered resource plays. One of my key criteria for investing is – does the company have a large land base around a discovery.
These geological formations have shown they can be very consistent for miles or tens of miles, so the market, in its current psychology, is (very) often willing to price in future growth long in front of a well ever being drilled. Raw land in resource plays – not a single well on them – can make stock prices fly. As the Cardium play in Alberta gained momentum in the last half of 2009, many moribound gas weighted producers were rescued by the fact they had large land positions there – causing their stocks to move up 50% or better in weeks without any drill results!
Petrobakken’s (PBN-TSX) purchase of Result Energy (RTE-TSX) in early 2010 is another example of a highly valued land play that was bought out. Result had a land position in the Alberta Cardium play. Cardium land positions were going for as much as $4000 per acre in early 2010. Petrobakken was buying much of that land, and many analysts went negative on that stock afterwards, saying the company had overcapitalized its assets, or, in English, paid too much for the raw land to get a profit out over full cycle costs.
Ryland had small production of 150 bopd of light oil, but had 475 square miles, or sections, of land in various locations in the Bakken play in SE Saskatchewan, though most of it was in what is called the Flat Lake area near the US border.
The way oil and gas analysts at the brokerage firms value this type of transaction goes like this: assign a value for the production first, which reading analyst reports this morning, estimated it at $100,000 per flowing barrel. That equals about $15 million in value (150 x $100,000).
So $121.8 million – $15 million = $106.8 million for land value – divide that by 475 sections = $224,842 per section, or $351/acre.
For Crescent Point, that could be very cheap as Enerplus (ERF.UN-TSX) just paid $750,000 per section for land just northwest of Flat Lake. Ryland’s price may have been cheaper because it had some GORRs (Gross Over-Riding Royalties) that could be onerous on cash flow on many of its properties.
Other junior oil players with land in the Flat Lake area near Ryland include (in alphabetical order)
Atikwa Resources, (ATK-TSXv), just north of Flat Lake at Roncott
Nuloch Resources (NLR.A-TSXv), east at Tableland (and on North Dakota side)
Spartan Resources (SPE-TSX), just east of Flat Lake
Torquay Resources (TOC.A-TSXv), just southwest along the US border
I do not own stock in any of these companies, though I am researching one very diligently right now.
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