Wednesday, August 1, 2012

Dan Loeb Nailed the Petronas Takeover Of Progress Energy

Long Equity and Debt: Progress Energy Resources Corp.

We initiated a position in Progress Energy Resources (PRQ), a Canadian mid‐cap E&P company based in Calgary, Alberta, early in 2012 after the significant sell‐off in natural gas prices and natural gas‐related equities. Progress's primary asset is an 825,000 net acre position in the unconventional Montney gas play in British Columbia. Our thesis was that despite temporarily low gas prices, Western Canadian natural gas producers had strategic advantages due to their ability to monetize their gas in higher‐priced Asian LNG markets. The difference between the price of gas in Asia ($15 or more per mcfe) and the low F&D costs of unconventional gas in Western Canada (~$1 mcfe) caught our attention and Progress was an appealing way to access this arbitrage.

Western Canadian gas assets are more attractive than US shale assets for two main reasons. First, these assets lie in closer proximity to Asia, offering lower costs of shipping LNG products than proposed LNG projects in the US Gulf of Mexico and East Coast. Further, because Canada is an incumbent energy exporter, the country has a favorable regulatory environment, meaning LNG exports to Asia encounter minimal political opposition. We viewed Progress as an ideal target for a larger company with LNG ambitions, given Progress's large, concentrated asset base in the Montney and small size. Our thesis about Progress's attractive assets proved correct, and the Company recently agreed to be acquired by PETRONAS, the Malaysia National Oil Company for C$20.45, a 77% premium. Third Point held both equity and convertible bonds in Progress, which we sold into the acquisition for +67% and +17%, respectively, returns on average exposure.

Link to full Third Point Report: Daniel Loeb Comments on Yahoo, Delphi, Europe in Second Quarter Letter

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