Renegade joins resurgence of oil-weighted juniors

March 14, 2012

By Dan Healing, Calgary Herald

CALGARY – Last summer and fall, Renegade Petroleum Ltd. was effectively shut out of equity markets as risk-averse investors looked for anything but volatile oil and gas stocks.

The Calgary-based producer’s shares slid from $4.88 in early 2011 to as low as $1.90 per share in October, despite its almost 100 per cent weighting to light oil from its Saskatchewan land base.

But times have changed.

On Tuesday, Renegade announced it had upsized a $30-million bought-deal financing (where investment firms buy shares to resell to investors), adding $10 million by selling 2.5 million extra shares at $4 each.

With another $10 million raised through an issue of flow-through shares (designated for exploration and development) at $4.80 each, gross proceeds come to about $50 million to be used to pay debt and fund drilling.

Meanwhile, it announced an $11-million deal to buy drilling rights in a new northern Alberta resource play called Slave Point. A week earlier, it had announced entering the play, its first in Alberta, through a series of land purchases over the past five months.

At the close Tuesday, Renegade shares were at $4.16, down four cents.

“If you look at our stock price, it’s a little bit better market now,” agreed Renegade president and chief executive Mike Erickson in an interview.

“Renegade’s a unique junior oil company in that we’re 96 per cent light oil, so there’s just not that many juniors out there with the oil weighting and therefore the cash flow and the netbacks from our production.

“There are only a handful and, in fact, in recent months here several of our peers in that 3,000-8,000 barrels per day category have been bought.”

Oil prices have continued to rise this year while natural gas prices slide and that is putting all the equity demand in oil producing companies.

Analyst Allan Stepa of Desjardins Securities, who rates Renegade a sector outperform, agreed there has been a fundamental shift in the way investors look at oil-weighted juniors.

“Last year, when the risk off-trade was in play, anything that was a junior company in the market didn’t have much traction,” he said.

“People were fleeing illiquidity. Sentiment in the market has been stronger to start the year but all the focus is on oil-weighted companies.”

Stepa agreed that there is a scarcity issue driving share prices at Renegade and its peers, such as TriOil Resources Ltd. and Hyperion Exploration Corp., although few peers are as leveraged to oil as Renegade.

And he also agreed the sector is shrinking due to recent takeover activity by acquirers such as Crescent Point Energy Corp. and Whitecap Resources Inc.

“I think there’s a high likelihood in the next year or two that (Renegade) will be sold,” said Stepa.

“It’s hard to find good oil plays out there that are repeatable so if they can prove that up (Slave Point), they’ll have a target on their back.”

The asset buy announced Tuesday will take Renegade to nearly 13,000 net hectares in the Slave Point play, with access to processing facilities, infrastructure, storage and an all-season road. The seller was not revealed.

In an update last week, Renegade said it has recently been producing 4,000 barrels of oil equivalent per day, already realizing its 2012 average guidance of 4,000 to 4,200 boe/d based on a $76-million capital budget.

Erickson said the company plans to accelerate its exploration in the Slave Point play and buy more land in Saskatchewan.

“We’re focused on growing,” he said. “We set goals to grow and when we reach those goals we set new goals.”

But he added the management team, which sold a predecessor company called Renegade Oil and Gas Ltd. to the company that became Legacy Oil + Gas Inc. in 2009, is also open to the right acquisition offer.

© Copyright (c) The Calgary Herald

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