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Around this time last year, I made an urgent trip to Canada to meet with the CEO and members of the board of a small Canadian oil and gas company.
With massive land interests in Alberta's prized Peace River Arch, I knew that this company, Aroway Energy (ARWJF) was destined for success.
You see, the reason I had to make this trip on short notice was that this aggressively expanding energy company had just been named to the oil and gas "Hall of Fame"...a designation for the fastest growing and best-managed companies.
The reason ARWJF got this highly sought-after ranking was that in the previous year they had gone from nothing, to producing 490 barrels per day.
In the year since, Aroway grew production over 100% to 1,020 barrels of oil (BOE) per day.
That's right. This company is growing like a weed in the science lab...
But believe me, they're just getting warmed up...
Aroway has increased its land base from 4 sections to 121... and now controls over 77,000 acres. (That's roughly the size of 5 Manhattans!)
The company's properties are surrounded by 5 major producers, reducing exploration risk... and setting itself up to be a prime takeover target. (More on this later in the report.)
2012 was an unbelievable year for Aroway, but two recent announcements really capped it off.
On October 25th, Aroway representatives announced a total production increase for the 12 month period ending on June 30, 2012, of 526%. The announcement also revealed a staggering revenue increase of 1,112% over that same 12 month period.
Less than two weeks later, on November 8th, another press release showed Aroway had just penned a deal to purchase an additional production capacity of 265 barrels/day from private operators (for about 25 cents on the dollar based on average costs).
This all paid off by the start of 2013 when Aroway's official daily output broke through the 1,000 BOE threshold.
But they didn't stop there.
Even as production broke past 1,000 BOE/day, plans for further expansion were in the works.
The latest: A goal of adding another 300 BOE/day to output this spring.
Based on the company's performance so far, and its blue-chip land package, I fully expect the company to reach its production target...and also expect its share price to grow along with it.
All of this is recipe for substantial gains for investors. In my opinion, this is an easy triple.
But the gains are only to be had by those who start building their positions now. You see, in 2012, the company won an award that nearly guarantees that this stock is going higher. A lot higher.
Aroway Energy Elected to Canada's
Oil "Hall of Fame"
Now, before I continue, just a little bit of background on the TSX Venture Exchange's 'Venture 50', and what it's meant for past recipients. Every year the Canadian stock exchange selects the very best energy stocks, the top ten, for the coming year.
It's part of a designation called the TSX Venture 50. And being ranked in this group is like winning the lottery.
Some even consider it the "Hall of Fame" of the stock market... literally money in the bank for shareholders of these elite companies.
You see, once a stock is selected into the TSX Venture 50, it gets noticed immediately by bigger fund managers, superstar investors, and other oil companies.
And it becomes a prime acquisition target.
I've seen it happen many times before to other oil and gas companies elected into TSX Venture 50.
To give you an example of what it means to be included to the TSX Venture 50, when an unknown oil company called Coastal Energy was awarded membership to this exclusive group in February 2010, it was trading for just $4 a share. Two years later it was trading for $21 a share.
Coastal Energy now sports a market valuation of $1.8 billion!
Or take oil stock Painted Pony, which is also a TSX 50 alum. Between 2009 and 2011, its stock went from $1.25 to $13!
That's a gain of 940% in just 24 months!
Last year, Aroway Energy (ARWJF — $0.50) was selected to the TSX Venture 50 as one of the best oil and gas stocks for your portfolio.
That means that out of nearly 2,500 stocks that trade on the Canadian Venture Exchange, Aroway Energy is considered to be among the oil and gas leaders... and among the very best stocks to own.
And who can blame them?
You see, Aroway isn't a "could become" or "might be" speculative play like many small junior oil and gas stocks in today's market. It's already a proven winner... producing nearly 1,020 barrels of oil per day! That's a gross revenue of $97,000 PER DAY, and it's growing each and every day.
And this young company is already profitable.
Take a look:
The company's oil producing properties are in the highly prolific Peace River Arch region in North Western Alberta and is surrounded by the cream of the crop of the Canadian oil industry.
The area is recognized for its high quality reserves and its prolific oil, gas liquids and dry gas potential found in multi-stacked hydrocarbon charged formations.
According to CBS MarketWatch...
"The Peace River Arch is one of the most prolific natural gas and oil producing areas of the Western Canadian Sedimentary Basin"
And according to Yahoo Finance...
"Companies in the area [Peace River Arch] are aggressively pursuing land acquisitions while increasing drilling programs and facilitating potential mergers and acquisitions."
So you can see why I'm bullish on shares of ARWJF.
They've assembled a very impressive land package of 121 sections (77,440 acres) with 3D seismic coverage over 75% of its lands.
I've been talking with Chris Cooper, President and CEO of Aroway Energy, for the past year. And I can tell you with confidence that Aroway is one of the best, if not the best junior in the oil patch.
Now, you know that I've been a long-term bull in oil and gas. And you know that I've been spot on in our Bakken oil picks. In fact, I went to law school with a mineral rights attorney in Williston, North Dakota (the heart of the Bakken boom).
I'm not saying I get insider tips from him. But whenever we talk shop about the oil and gas boom, I'm one of the first to know exactly what's happening on the legal side.
And I can tell you that the Peach River Arch region is one of the most-sought-after oil and gas regions in North America.
But the truth is — North America (not just the U.S.) is undergoing a tectonic shift in the global, energy complex.
Some argue that the U.S. and Canada will be the global oil and gas powerhouses this century, displacing the Middle East.
In fact, in 2011, Citibank published a report claiming that North America will become the new Middle East.
It said...
"Oil and gas in the United States and North America is going to skyrocket in the next 8 years due to strides in natural resource extraction. North America will become the new Middle East, at least in terms of oil production."
Similar to the Bakken in North Dakota and Montana, the Peace River Arch will be instrumental in this shift. The Peace River Arch area is located in Northwestern Alberta and NE British Columbia. This area is recognized for its high quality of reserves and its prolific oil producing basins.
The image below shows where Aroway Energy's properties are located in the Peace River Arch:
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Geographically, Aroway is surrounded by majors, especially one of our favorites, Crescent Point Energy.
Friends in High Places
| Company | Market Cap |
|---|---|
| Crescent Point Energy | $11.8 bil |
| Birchcliff Energy | $783 mil |
| Bonavista Energy | $2.7 bil |
| Canada Natural Resources | $37.4 bil |
It's a winner. Period.
All of the company's exploration and development targets are in close proximity to tie-in, gathering and plant infrastructure, controlled and owned by Aroway's Joint Venture Partner.
In my current analysis, Aroway Energy is on course to gain over $35 million in oil revenue by supplying the North America energy markets.
But the market isn't awarding it the same valuation as its peers. This is an opportunity for you and me to make quite a bit of money.
Call it a glitch or a market inefficiency, but even if their share price were to double to $1.00, at today's production rates, Aroway Energy would still be trading at nearly a 70% discount to its peers.
Take a look at this chart: See what happened when the company first went from 0 production to 490 BOE/day?
Their stock exploded... going from about 30 cents, to over 90 cents in just several months.
But then, as production continued ramping up, a funny thing happened... The stock slowly drifted back to 50 cents.
This is where the imbalance first took hold, and with each additional barrel Aroway added to daily output, the imbalance just grew... and grew... and grew.
Today, that imbalance is at an all-time high and about to get even bigger.
Far bigger. In just a few months time, production will be approaching 3 times what it was when the stock hit a high of 93 cents.
In fact, if you do the math, you'll quickly see that if the stock retained its price/production ratio from just a year ago, it should be trading today at $1.94/share.
Instead, it's holding steady at around 54 cents — that's a 72% discount over where it was just a year ago!
Now... one thing I can tell you for sure, is that an undervalued stock like Aroway won't be a secret for long.
It's already changing. And the market is starting to take notice.
Here's the deal...
Aroway is just starting to get attention from investors in Canada.
In the U.S., it's totally off the radar, which means we're way ahead of the curve.
Now that it has surpassed 1,000 barrels of production, however, more and more investors and even fund managers will get clued in to the potential.
And here's the first thing which will catch the eye of the analysts:
While Aroway's biggest competitor in the Peace River Arch, Birchcliff Energy traded for $116,000 per flowing barrel in 2012 (Yahoo Finance), Aroway Energy is trading for $32,000 per flowing barrel.
If Aroway reached the industry average, its stock would hit $1.95 a share, or 300% above today's levels.
There's our opportunity for an easy triple. But I'm being conservative. I think it'll go even higher.
Remember, the official production rate is set to go from 1,020 barrels to 1,300 by the middle of this year...another 30% increase.
I rate Aroway Energy a strong buy at current levels... with a target of $1.73 a share within the next few months.
To stay up to date on Aroway and other investment ideas, sign-up for the K Street Financial eLetter by clicking here.
Profitably yours,
Alex Koyfman
Editor, K Street Financial
Copyright © 2013, K Street Financial. No statement or expression of opinion, or any other matter herein, directly or indirectly, is an offer or solicitation of an offer to buy or sell securities mentioned. While we believe the sources of information to be reliable, we in no way represent or guarantee the accuracy nor the statements made herein. Any investment should be made only after consulting a professional investment advisor and only after reviewing the financial statements and pertinent corporate information about the company. Investing in securities is speculative and carries a high degree of risk. It is possible to lose your investment. Statements included in this newsletter may contain forward looking statements, including the Company's intentions, forecasts, plans or other matters that haven't yet occurred. Such statements involve a number of risks and uncertainties. The publisher is not a registered investment advisor and does to purport to offer personalized advice; the publisher does not determine the suitability of the advice and recommendations contained herein for any reader. Past performance does not guarantee future results. As Full Service Media, LLC has subsidized distribution costs, this feature should be construed as advertising. Full Service Media LLC is not a shareholder, nor does Full Service Media or any of it's members intend to buy any stock within the next six months.Market Hawk Media, LLC developed and coordinated this mailing having received and administered a budget of two hundred thousand dollars. This report has been distributed as part of a new subscriber effort.Some new subscriber revenue is expected as a result of this effortâ€"the amount of which is unknown at this time.
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