Cobra Venture Corporation: no-brainer oil nanocap trading below liquidation value

At 0.235 CAD per share Cobra Venture Corporation (filings) is a tiny oil company with assets in Western Canada. The stock trades with symbol CBV on the Canadian Venture Exchange.

Photo by David Thielen on Unsplash.

I do not think Cobra Venture Corp operates any wells itself. Instead it owns stakes in projects with operators that are independent from the company.

In addition the company owns 350k shares of private company Star Valley Drilling Ltd, with book value 350k CAD. This stake is among the non-current assets. On its website Star Valley writes it provides “Performance Drilling Equipment”.

As at 21 April 2022 there are 16.00 million shares. There is substantial option overhang: 1.29 million options at 0.135 CAD per share.

See the financial statements over the year ending on 30 November 2021, the management discussion of that year, the notice for the annual meeting on 26 May 2022, the recent financial statements (28 February 2022) and the recent management discussion.

The market cap is tiny, about 4.0 million CAD per share including the effect of in-the-money share options. It is not that expensive based on EV/EBIT and EV/Revenue and P/FCF is nearly 10. The balance sheet is strong with a high current ratio and hardly any leverage.

Governance

I have not found any dilutions, repurchases or dividends except for a recent dividend of 0.03 CAD per share. The record date was 6 April 2022. The company does not have plans for future dividends.

I found one substantial shareholder: director David H. Evans with 11.62%.

Related party transactions: I think it is just management compensation, for the CEO and the CFO. I do not think there is much to see although David H. Evans gets much better compensation that the other non-executive directors. See also here. The CEO is David B. Evans. I suppose he is a family member of substantial shareholder David H. Evans.

A search on the company name and keyword fraud did not reveal any relevant information. I also searched on “David Evans” and “fraud”. I do not think this search returned relevant information on these 2 people at Cobra Ventures.

Liquidation value

What makes Cobra Venture interesting is a simple analysis of liquidation value. I estimate current assets minus liabilities at 2 million CAD. According to the latest reserve report (from November 2021) developed and producing proven plus probable reserves are about 2 million CAD. This valuation is based on an oil price of 60-65 CAD and a 10% hurdle rate. Because oil prices have increased a lot since November a better reserves valuation might be 4 million CAD.

For the same reason I think the stake in Star Valley Drilling Ltd is also worth more than the 350k CAD in the non-current assets section of the balance sheet. Therefore, liquidation value could be 6 million CAD, which is well above the current market cap.

Long Cobra Venture Corporation.