We were going to stay away until after Labor Day, but this is too good to miss. From reader MCN1 on Aspen Exploration Corporation (OTC:ASPN):
Company Name: Aspen Exploration Corporation
Ticker: ASPN
Market Cap: $6.53M (as of 9/2/09)
Stock Price: $0.90 (as of 9/2/09)
Company Overview: Aspen Exploration Corporation is engaged in the exploration and development of oil and gas properties in California and Montana.
Situation:
Being a micro cap stock the management acknowledged in a press release in Sept 2008 that it would begin exploring strategic alternatives for Aspen “including the possibility of selling Aspen’s assets or considering another appropriate merger or acquisition transaction (from press release dated 9/4/08).” The motive behind pursing “strategic alternatives” was three fold: (1) the cost of being a public company for a company their size, (2) the belief the market price did not reflect the true value of ASPN’s assets, and (3) the president’s health issues (had a stroke in Jan 2008).
In Feb 2009, ASPN announced it had entered into an agreement with Venoco, Inc (VQ) to sell its California assets for approximately $8.425M (approximately because it was subject to adjustments). It was a good strategic fit for Venoco who has operations close to Aspen’s. On June 30, 2009 the transaction closed with Aspen receiving $7.6M (net of fees). Additionally, during this time period, Feb 09 – Jun 09, Aspen also sold its interests in Montana for $1.2M. Thus, the total sale proceeds to the company were $8.8M between the two transactions.
The company is trying to decide what to do with its liquid assets, either liquidated and payout to stockholders or pursue new business opportunities. Now management has stated it has reviewed some business opportunities, and thankfully, and has passed on those opportunities. Especially when you take into account that management is willing to look at opportunities outside of oil & gas – which was the company’s core business.
In either late October or November of this year, the company is going to “propose a resolution to consider the possibility of dissolution of Aspen to our stockholders at a meeting of stockholders….If Aspen were to dissolve, it would not enter into another business opportunity but would wind up its operations and distribute its remaining assets to stockholders (from 8-K filing dated 6/30/09).” This is what I and others are betting will happen.
Financials & Valuations:
Here is a look at the post transaction balance sheet (pro forma) as of 3/30/09. The numbers below are taken from a SEC 8-K filing dated 7/2/09.
Comments on Valuation:
Cash – I margined it at 95% to account for ongoing overhead the company still has to pay.
Deposits – not sure what that figure represents, could be overstating liquidation value here. 50% is arbitrary though amount is insignificant to the whole deal.
Valuation – Estimated net liquidation value of $1.38/share, the majority of which, represents cash and marketable securities at $1.26 compared to market price of $0.90.
Other:
The company also has joint venture, which they entered into in January 2007, with a company called Hemis Corporation where Hemis is the operator and is permitted to explore for commercial amounts of gold. Because Hemis is the operator, Aspen is not obligated to pay for any of the exploration and production costs, instead, Aspen retained a 5% gross royalty on production. As part of the agreement, Hemis paid Aspen $50k in Jan 07, $50k in Aug 07, was obligated to pay another $50k in Sept 08 (which hasn’t been received), and $50k on each anniversary date until production begins. Since the Sept 08 has not been received (and no updates have been provided), the agreement could have been terminated as non-payments was grounds for termination. I have assigned no value to this joint venture.
The stock is thinly traded, usually a couple thousand shares trade everyday. Since my purchases in July 09, the stock has ranged from $0.87 – $0.97.
Catalyst:
Catalyst one – the stockholder meeting in late October or November with stockholders voting to dissolve the company and proceeds are paid out.
Catalyst two (which helps ensure catalyst one occurs) – during May 09 – June 09 an individual (I’ll spare the name, you can refer to the SEC 13D filing, just look it up under Aspen’s filings on the SEC website) acquired $422.7K of stock in the company for an approximate 5% stake. In the 13D filing the individual states his intent which is “As Aspen currently has no active business operations and a significant amount of liquid assets, (individual name) believes that there is broad shareholder support for the implementation of a plan of liquidation and distribution of substantially all the proceeds from the Sale and Aspen’s additional liquid assets to Aspen’s shareholders. (individual name) is considering several stockholder resolutions…for inclusion in Aspen’s proxy statement for its next meeting of stockholders”
Disclosure: I am long ASPN. The information presented is obtained from public filing, please perform your own due diligence as this is neither a recommendation to buy or sell.
[Full Disclosure: We do not have a holding in ASPN. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]
[…] Corporation (OTC:ASPN) to the Greenbackd Portfolio for the reasons identified by MCN1 in his September 3 guest post. ASPN closed yesterday at $0.985, giving it a market capitalization of just $7.2M. We […]
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Aspen recently filed a proxy for their annual meeting, which includes a proposal on liquidation. It’s not binding though, it just gives the board the option to liquidate. The CEO (and 20% owner) is opposed to it, while the other board members are undecided and aren’t providing a recommendation either for or against.
They still plan to distribute the proceeds of the sale to Venoco. Like PREfontaine said, that should be between $.90 and $1.00 per share, paid in December.
However, based on the proxy I wouldn’t expect a full liquidation any time soon. The way I read it, they included this proposal to appease a large shareholder, but none of the board members actually want to go through with a liquidation. That’s just me reading between the lines though, so take it for what it’s worth (very little).
The meeting is on Nov 20th. I wonder if it’s too late for shareholders to nominate directors or conduct a proxy fight…
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Thanks for the write-up. I think it’s a homerun below $.90/share. So far, they’re only seriously considering a distribution of the proceeds of the California asset sale, which will be around $.90/share after making some conservative cash burn assumptions. I’d like to get more clarity from management on their intentions concerning the rest of the business now that its trading above $1.
Looks like there is a pretty strong seller(s) out there right now. Bid is weak and appears to be one retail buyer looking to get it in at any cost. Maybe (s)he knows something that I don’t…
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[…] Aspen Exploration Corporation (OTC:ASPN) […]
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Thanks everyone for the comments, I thought I would address a few of the items brought up:
Cash Balance – unfortunately yahoo finance numbers don’t present the post-sale balance sheet of the company. You’ll have to dig into the SEC filing to get that.
Liquidation Costs – I think its an interesting point to bring up, though given the company has already liquidated its core assets I think any future liquidation costs will be minimal. And as tedk81 pointed out, in my analysis I margined cash at 95% which should capture any unforseen costs.
Thanks everyone.
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Liqy,
He cut over $1M from the current assets to arrive at his estimate, in a small company with 2 employees and all the big assets already sold, how much more do you expect liquidation costs to be?
I’m not expecting a huge cash burn either given the state of the company.
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Careful, there is no real mention of liquidation costs in this analysis.
When you start out with only 12 million in cash, liquidation costs can destroy a relatively large % of your value.
I think this was interesting when the stock dipped, those buying above a dollar are taking a very real risk.
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it’s not reflected in the yahoo numbers, check their 8-K from 7/2. this company isn’t burning cash anymore, they have 2 full-time employees, one of which has a health problem… good post.
i’m glad i was up at 4 am today, saw this post, took a couple hours to research it and made the first trade of the day on it. 9000 shares at .975, so far so good. put a bid in to buy 3k more at .95 that sat there for an hour, but it’s just so thin no one sold at market and then it ran off.
this stock is so thinly traded, i’m pretty sure this post moved the market. biggest volume day on this thing since late june.
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interesting stuff. looks like the market got whiff of this posting today!
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just reread the post. i think probably the 7.6 m in cash from the venoco deal probably not reflected in the yahoo numbers yet it seems.
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Interesting… thanks for the suggestion MCN1…
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hi-
great blog. one thing, looking at the cash per share on yahoo finance, it seems like the company has .70 per share in cash as of 6-30-09. any idea if they’ve utilized much of the cash since 3-30? thanks in advance for your response.
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