“I don’t look to jump over 7-foot bars: I look around for 1-foot bars that I can step over.” — Warren Buffett
Investing in small-cap companies offers a unique advantage: simplicity. These businesses often operate with lean, focused models that are far easier to understand than the sprawling empires of large-cap giants. Pair that simplicity with a brilliant management team, and you have a recipe for outsized success.
Yet, paradoxically, many investors flock to industry titans, mistaking familiarity for simplicity. Their size and presence offer a comforting sense of security. But beneath the surface lies a labyrinth of complexity: sprawling business units, intricate supply chains, countless subsidiaries, and an army of employees. For the average investor, understanding the fundamentals of these behemoths can feel like decoding an encrypted message.
This is true in an industry like oil and gas where businesses like ExxonMobil, Chevron, and Shell dominate the headlines. But if you search under the hood of a company like Exxon, you will find a corporation managing over $461.9 billion in assets and $185.5 billion in liabilities. Miss a key detail, and it could cost you.
Take Tenaz Energy as a case in point. This small-cap oil and gas company embodies Buffett’s philosophy of stepping over 1-foot bars. Tenaz offers the best of both worlds: robust financial performance and a straightforward business model. With fewer moving parts and easily trackable developments, it allows investors to stay close to the action and understand exactly how value is created.
Tenaz also meets the cornerstone criteria of smart investing:
- Proven management with a track record of success.
- Strong financials that demonstrate stability and growth potential.
- Attractive valuation — purchasing shares at a discount to intrinsic value.
By diving into Tenaz Energy’s story, you will gain not only a deeper understanding of this specific opportunity but also a replicable blueprint for successful small-cap investing.
Tenaz Energy’s Journey So Far
Over the past year, Tenaz Energy’s stock price has skyrocketed by 235%, adding roughly $227 million to its market valuation. This is no accident; it is the direct result of prudent capital allocation and a razor-sharp strategy.
At its core, Tenaz Energy operates with a refreshingly simple yet powerful model: acquire and optimize free cash flow-producing oil and gas assets. This focused approach traces back to October 2021, when President and CEO Anthony Marino, alongside his seasoned team, took the reins by acquiring Altura Energy and rebranding it as Tenaz Energy.
The Leduc-Woodbend Project: A Sound Foundation
Central to this transformation was the Leduc-Woodbend Project, located in Alberta’s prolific Mannville formation. Inheriting a production base of 1,100 barrels of oil equivalent per day (boe/d), with 60% of that in oil and natural gas liquids (NGLs), Marino recognized the immense potential.
He highlighted its advantages: robust drilling economics, a contiguous land base, substantial infrastructure access, and minimal abandonment obligations.
This project became the cornerstone of Tenaz Energy’s resurgence. By Q3 2024, Leduc-Woodbend’s performance speaks volumes, with production averaging 1,537 boe/d and 2P reserves totaling approximately 13 million boe by the end of 2023.
Global Ambitions: Strategic Expansion
Tenaz’s vision extended far beyond Alberta. In his first quarterly address as CEO, Marino unveiled the company’s bold expansion strategy, aiming to broaden Tenaz’s geographic reach by seeking high-quality assets in Europe, the Middle East and North Africa (MENA), and South America.
“We prefer to have a wide set of assets to choose from as we search for the highest returns for shareholders. Once we have made cornerstone acquisitions in one or two of these regions, we will pursue follow-on acquisitions and asset development to create meaningful scale […] The lowest risk assets for returns to shareholders will be from fields that are already producing, and this will be the primary focus of our acquisition efforts.” — Anthony Marino
Tenaz Energy’s Entrance into the Dutch North Sea
In December 2022, Tenaz Energy executed a strategic acquisition that expanded its footprint into the Dutch North Sea, positioning itself for both near-term cash flow and long-term growth. This was management’s first demonstration of prudent capital deployment and innovative value creation.
Tenaz acquired 100% of a private firm with both upstream and midstream assets in the Netherlands. Instead of a typical hefty upfront cash payment, Tenaz agreed to assume the future decommissioning liabilities of the acquired assets.
These liabilities were valued at $58.9 million (EUR 40.9 million) as of January 31, 2022. But by early 2023, the liabilities were projected to plummet to just $16.9 million (EUR 11.8 million), thanks to completed decommissioning activities and surging European natural gas prices. To fund the acquisition, Tenaz utilized a $25 million credit facility, which was fully repaid in Q1 2023.
This approach avoided standard acquisition costs, provided non-dilutive financing, essentially debt-free growth, and assets adding immediate value. Key assets acquired included:
- 5 mmcf/d of natural gas production across nine offshore licenses operated by Neptune Energy, with an average working interest of 8.4%.
- Approximately 809 mboe of proved developed reserves and 1,214 mboe of total proved plus probable reserves.
- An 11.34% stake in Noordgastransport B.V. (NGT), one of the largest gas-gathering and processing networks in the Dutch North Sea, spanning nearly 500 km of pipelines with a 99.8% uptime record over three decades.
- A stake in the L10 Carbon Capture and Storage (CCS) Project, an initiative targeting 5 to 8 megatons of CO2 annually for up to 30 years.
For 2023, the acquired assets were projected to generate approximately $23 million (EUR 16 million) in funds flow from operations (FFO), equating to $0.82 per share without diluting shareholder equity.
Tenaz Energy Buys XTO Netherlands
Following a similar strategy, Tenaz acquired XTO Netherlands from ExxonMobil in June 2023. Like the first deal, Tenaz assumed future decommissioning liabilities rather than paying large upfront capital.
The acquired assets were valued at approximately $29.2 million (EUR 20.1 million). Tenaz utilized $15.3 million (EUR 10.5 million) of cash held within XTO Netherlands to offset decommissioning obligations, lowering the net cost. This acquisition significantly expanded Tenaz’s working interest in several key offshore license blocks:
- L10/L11a: From 11.35% to 21.43%
- K9a and K9b: From 8.44% to 15.94%
- K9c: From 6.49% to 12.26%
- K12: From 5.67% to 10.71%
- N7b: From 9.45% to 17.86%
Tenaz also increased its ownership in Noordgastransport B.V. (NGT) from 11.34% to 21.4%, making it the second-largest shareholder. NGT has consistently paid dividends for more than 20 consecutive years (in 2022, shareholders received $27.0 million / EUR 18.4 million in dividends).
The XTO Netherlands acquisition added 664 mboe of 2P reserves (99% natural gas), with a projected productive life of 13 years. For 2023, these assets were expected to produce 450-500 boe/d, representing a 20% increase in production per share, and generate $7.4 million (EUR 5.1 million) in FFO.
Tenaz Energy Buys NAM Offshore BV
By mid-2024, Tenaz Energy was generating 2,535 boe/d and $3.4 million in funds from operations (FFO) in Q3 2024, with full-year guidance targeting 2,700-2,900 boe/d. Then came the announcement that shook the market: Tenaz was acquiring NAM Offshore BV (NOBV) from Shell and ExxonMobil.
The acquisition came with a price tag of $246 million (EUR 165 million) in base consideration, plus contingent payments. Tenaz paid a $34 million (EUR 23 million) cash deposit and secured a $90 million credit facility from National Bank of Canada.
The masterstroke: Tenaz would begin realizing free cash flow (FCF) from NAM Offshore BV as of January 2024, a full year before the deal’s anticipated close in mid-2025. NAM is projected to generate $134 million (EUR 90 million) in FCF for the year, effectively allowing the assets to pay for their own acquisition.
This acquisition fundamentally transformed Tenaz’s scale and value:
- Production: A 3.9x increase, adding approximately 11,000 boe/d (99% natural gas).
- Reserves: A 3.7x increase in 2P reserves, totaling 53.6 million boe.
- Reserve Value: A 6.2x increase in 2P reserve valuation.
- Tenaz became the 2nd Largest Operator in the Dutch North Sea.
Contingent agreements associated with the deal include:
- Earn-Out Payments (2025-2027): 50% of 2025 and 2026 FCF, and 25% of 2027 FCF, capped at EUR 120 million in total.
- Volume-Based Royalties: Payable to NAM if a new field discovery on NOBV licenses surpasses certain thresholds.
- Gas Price Contingent Payments (2028-2031): If average realized TTF gas price exceeds EUR 50/MWh, NAM receives a share of the incremental after-tax cash flow.
What’s Next for Tenaz Energy?
While no formal announcements have been made, the signs suggest that Tenaz Energy may be positioning itself for another transformative acquisition. In a notable move, Tenaz recently secured $140 million in Senior Unsecured Notes from institutional investors.
Interestingly, part of this funding will replace the $90 million delayed-draw term loan previously arranged with National Bank of Canada to finance the NAM Offshore BV acquisition. However, the fresh debt far exceeds the amount required to cover NAM, leaving tens of millions in capital likely earmarked for future deployment.
With an annual interest rate of 12% on the notes and principal due in 2029, management is unlikely to let this capital sit idle. Given the company’s extensive footprint in the Dutch North Sea and its ambitions to explore Europe, MENA, and South America, there is no shortage of opportunities.
“It’s not about being bigger; really what we’re after is value for existing shareholders.” — CEO Anthony Marino
Tenaz isn’t chasing scale — it’s chasing quality, with fresh capital in hand and a clear appetite for value-driven growth.
Final Thoughts
Tenaz Energy’s leadership has proven, time and again, that they are masters at uncovering high-value opportunities in the oil and gas sector. Every acquisition has been meticulously crafted to deliver immediate and lasting returns, all while safeguarding shareholder interests — with zero dilution.
Insiders own 21% of the company on a fully diluted basis, aligning their interests directly with shareholders. The company’s five-year production target of 50,000 to 100,000 boe/d highlights its bold ambition. With a market cap of just $366 million at the time of writing, there is significant runway for growth.
Simply put: If Tenaz wins, we all win.
Disclosure: This article is published by Micro Math Capital for informational purposes only. We are not brokers, investment, or financial advisers, and you should not rely on the information herein as investment advice. One or more Micro Math Capital employees own shares in Tenaz Energy. Please do your own research before investing, including reading the companies’ public filings, press releases, and risk disclosures.
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