Those Overlooked Canroys!

Yesterday it was reported that Apache Petroleum had made a huge new discovery of gas deposits. Its stock price shot up to new all time records. Any where was this big new discovery?

You guessed it, in Canada, in the Northeaster BC shale oil deposits, where all the Canroys already operate and have large lease blocks on their books, along with plenty of current production.

So how is it that Apache, dealing with the same provincial taxes / royalties and a 40% American income tax rate (according to its own documents), but only a 0.6% dividend yield, is shooting up in price, while the Canroys tread water? This is a huge anomaly in the investment world that must be resolved at some point. The Canroys are only paying out 50% of their cash flow currently (on average), and are reinvesting in acquistions and organic growth so that their growth rate is on par with Apache, Chesapeake, XTO, etc.

This development effort is building large tax loss reserves that they can use to offset future income (some are stating they will have no tax affect until 2015 with the reserves that are in place). The development programs create depreciation and tax credits that are available for exploration. Both the development credits and depreciation can be carried forward many years in Canada so that any future tax change can be put off for years into the future.

If anything the Energy E&P Canroys are getting cheaper all the time in comparison to their American counterparts.