Mat Wilson: Following The Money To Undervalued Contrarian Plays
The Energy Report | Feb 22, 2013 06:13AM ET
If you look very closely, you'll find some big players in the energy market sinking a lot of dollars into some very unconventional plays. Mat Wilson, an analyst with Pinetree Capital in Toronto, is following a trail of billion-dollar shale exploration and development investments from Canada to Texas and South America. Wilson tells The Energy Report which small-cap names are linked with hefty, large-cap investments and why they stand to benefit.
The Energy Report: What do you expect will be the hot themes affecting energy commodities in 2013?
Mat Wilson: Many of the same themes that drove energy commodities in 2012 will continue to affect them in 2013. There's instability in the Middle East, a bottleneck of infrastructure in North America, the Keystone Pipeline and the continuing development of shale wet gas that's occurring throughout the Western Hemisphere.
TER: Tell us about your thesis and how it interacts with some of these themes.
MW: My thesis is to follow the money. There's a lot of high-profile activity in some very interesting unconventional plays. In a world of declining conventional reserves, there's some big spending in North America and internationally in unconventional exploration and development.
Exxon Mobil Corp.'s (EC ) are starting to push into this area. Sintana farmed out 70% of its VMM-37 block to Exxon for a three-well carry and cash. Sintana is a bit of a long-term story because there won't be any drilling on its grounds by Exxon until the end of the year or 2014, but there will be some drill density developing in the region.
Historical results that have been published from the La Luna formation are very strong. Exxon is also doing deals with other companies in the area that could lead to some interesting results in 2013 and create some excitement for the story.
Sintana is run by a very strong team, has $10M in cash and a market cap of only $45M. The company has conventional and unconventional prospects and should be in a position to cash in, should this play heat up. In a sense, the success of these stories is about diversifying reliance on a single source of success. By farming out a portion of ground, establishing cash flow and pushing forward on separate exploration programs, a company is able to avoid being at the mercy of its farm-out partner, the market or a single asset. Donnycreek and Lynden don't have big partnerships with companies, but have large land packages and are able to self-finance production growth to explore those packages. Petrogas has its joint venture with Exxon, but also has substantial cash flow and a 90%-owned block in the south of the basin, as well as a phosphate and potash asset that could end up proving value.
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When all of the pieces are put together, it allows for development in oil and gas, which is certainly a challenging thing for a small-cap company.
TER: Thanks for speaking with us, Mathew.
Mat Wilson is the special situations analyst at Pinetree Capital Ltd. Wilson has spent the last several years covering a diverse range of small-cap stocks mainly focused in the commodities and technology spaces. Wilson received his Master of Finance from Queen's University in 2012 and graduated cum laude with a degree in economics and philosophy from Bucknell University in 2008. Wilson has also served as a director of TSX Venture-listed companies.
DISCLOSURE:
1) Brian Sylvester of The Energy Report conducted this interview. He personally and/or his family own shares of the following companies mentioned in this interview: None.
2) The following companies mentioned in the interview are sponsors of The Energy Report: Royal Dutch Shell Plc. Interviews are edited for clarity.
3) Mat Wilson: I personally and/or my family own shares of the following companies mentioned in this interview: Lynden Energy Corp. I personally and/or my family am paid by the following companies mentioned in this interview: None. I was not paid by Streetwise Reports for participating in this interview.
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