Frontera Energy

This has been a stealth win as a competition started for FEC's production assets – a competition which Parex (PXT.TO) has won. Most of the value of this position is going to come back to me as a C$9.18/share cash dividend and I like the idea of being long the infrastructure stubco. I'm happy to keep money parked here at least until the deal closes.

I'm only mentioning this one because there's an interesting angle to how I'm holding it. FEC announced that Geopark is buying all of FEC's oil producing assets and is taking on some of the associated debt. Long story short, FEC is expected to pay out C$7.18 per share to FEC shareholders on completion of the deal. FEC will be left with its infrastructure (pipelines + port) assets as well as its Guyana asset on completion of the deal. If the infrastructure assets are valued at 4x distributable cash flow the implied share price for the FEC stub-co would be around $3/share... but at 5x distributable cash flow the FEC stub-co would be worth around $4/share... at 6x the FEC stub-co would be worth $6/share. Given that FEC shareholders are going to get C$7.18/share back in cash, that means that if the stub-co gets even a little lift from the assumed 4x multiple on distributable cash flow, the return on the stub-co capital is significant. Here's the thing about this one though... I'm not sure what the nature of the C$7.18 payout will be... if it's a return of capital dividend, then it won't be taxable to holders, but if it is paid out in a taxable form, then the $7.18 isn't really $7.18 after it is taxed. A clean way around this is to buy this kind of position in a TFSA or RRSP account, which is what I've done. In my tax-shielded accounts, laying out C$10 here to buy FEC in the market means that C$7.18 is coming back to me, so it's really a play on the infrastructure stub, which I like.