Update on Calvalley Petroleum

I had invested a small portion in Calvalley Petroleum a few months back and wrote about it here.

The stock has a tiny market capitalisation of USD 120 million and looks cheap with a trailing PE of 5 and PB of 0.6. Calvalley is not only debt free but has USD 84 million of cash and cash equivalents parked in a Canadian Bank, i.e. almost 2/3 of the market value are supported by net cash not subject to country risk! Although not a classic Ben-Graham-type of net-net play I still consider it to have some margin of safety since a typical net-net usually doesn’t have highly profitable operating assets: in 2013 the company had a Free Cash Flow to equity of USD 20 million (operating income – less capex). I would say the potential loss is limited by the Cash at the Canadian bank. It is also good to see management owning 25 percent of the company, with the bulk owned by the CEO and his family trust.

As you are aware, security risks in Yemen have materialized and management has decided to pay out that cash to shareholders, if they so chose (which I have done, since I am not permitted to own unlisted stakes in my fund anyway).


My margin of safety calculation has turned out pretty accurate and management has made the best decision for shareholders. I was aware of the security risks in Yemen, but hoped on a positive development which has not materialized and I am taking the loss. It was confirmed that the youth bulge theory is pretty powerful (and widely ignored in the mainstream media).


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