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Daylight's peers also lack development cash

A Chinese worker checks a fuel tank at a Sinopec petrol station in Beijing, 26 April 2007.


The shock from the 110 per cent premium that Sinopec paid for Daylight Energy Ltd. is wearing off, and analysts are generally agreeing that the Chinese are getting some good assets from this deal. Daylight was more or less struggling because it didn't have the cash to develop its projects, and Sinopec surely does.

Yet Daylight isn't the only firm in this boat, and that's raising questions. Companies such as Delphi Energy , NuVista Energy and Vero Energy not only lack the cash they need for development, which has hurt their stocks, but they all have assets in at least one of the three areas in which Daylight operates: the Cardium oil formation, the Montney formation and western Alberta's cretaceous multi-zone gas, according to CIBC World Markets analyst Jermey Kaliel.

"While each holds a material position in one or all three of the plays ... they also lacked the means to exploit the plays to their full potential, whether it be insufficient internal cash flows to direct towards development or inability to access external capital at acceptable prices," Mr. Kaliel noted.

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Because Sinopec ascribed such value to Daylight's assets, Mr. Kaliel suggests the market may start doing the same, sending these stocks higher.

It also suggests that another cash-rich acquirer might be willing to come in and buy one of these companies to develop the assets itself, or at least strike a joint venture, but Mr. Kaliel doesn't go that far.

He does, however, point out that there are firms who are operating in these regions and doing just fine. Mr. Kaleil cites Celtic Exploration (which has a lot of buzz right now), Paramount Resources and Progress Energy as examples of companies that are receiving what he says is partial recognition for their assets, and more importantly, all have better access to capital.

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About the Author
Reporter and Streetwise columnist

Tim Kiladze is a business reporter with The Globe and Mail. Before crossing over to journalism, he worked in equity capital markets at National Bank Financial and in fixed-income sales and trading at RBC Dominion Securities. Tim graduated from Columbia University's Graduate School of Journalism and also earned a Bachelor in Commerce in finance from McGill University. More

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