Over the past month I have been contacted by several friends asking whether they should sell their BQI position or not.  When your stock goes up some 50% to 100% within a few short months, it is only natural to want to lock in your profits after all.  But in this case, I think that might not be the best idea.  Holding BQI awhile longer might be worth your time.

Let me give you my original logic on the stock price.  At the height of the oil mania last year, BQI traded near $8.  During that time, oil was also trading between $70 and $80, the world was captivated with oil stocks, and Canada's oil sands were at the height of their popularity.  Subsequently, when the oil mania subsided, and everyone thought oil was going down to $30, I purchased BQI stock at around $3 thinking that higher oil prices would one day return.  I figured the stock was realistically worth somewhere between $5 and $8 depending on how high oil goes back up to.  If oil goes past $80, the BQI stock should once again reach its previous high of $8.  More realistically, I figured the stock was worth $6 medium-term.  ($6 also valued the company at around 50 cents per barrel which is reasonable for an exploration company.)



However, the BQI story has since changed dramatically.  Because they announced 10 billion barrels last month, which was 5x their original estimates, I now conservatively believe the stock is worth somewhere between 1.5x and 3x my original $6 number.  This is simple multiplication.  Instead of taking a 5x multiple, I am using conservative multiples assuming they don't have 10 billion barrels - more likely less - and assuming recoverability is less than 70%.

My numbers are far less bullish than others, however.  Some analysts believe the stock is worth between $25 and $35.  Here is an article I read yesterday that might provide more insight on why the stock was beaten down - and still down - due to a large short position.  The author thinks a short squeeze could result in the stock reaching $22 per share.

Oilsands Quest: Anatomy of a Potential Short Squeeze

The author of that article also provides a hypothetical situation where a Big Oil company might buy a large stake of BQI's assets:

What makes the situation that much more interesting is the fact that BQI management plans another resource update around the September-October timeframe. Especially notable is the fact that this update will contain the opinion of a 3rd party oilsands assessor, which will likely confirm management's internal resource estimate and the commerciality of its acreage. That should open BQI's management to the next step in its plan for the company; the establishing of a joint venture with a deep-pocketed, Big Oil partner who would provide the bulk of the financing for developing BQI's oilsands resource.

A sale of part of a project would immediately make transparent the value of the bitumen on BQI's property. For example, if a Big Oil company came and bid $5 billion for 60% of the company's 7 billion of recoverable resource (equaling an estimated 10 billion barrels of resource x 70% recoverability), that would imply that the entire 7 billion barrels is worth $8.33 billion. On a fully-diluted per share basis (assuming 250 million fully-diluted shares), that would imply that each share of BQI is worth $33.33 (=$8.33 billion value / 250 million shares). I would think that an explicit valuation of the company would, at the least, cause the stock price to approach that valuation relatively rapidly as do most similar joint venture announcements. Of course, those are just hypothetical numbers.

As you can see, there are many differing views on what BQI is worth.  But my point is that no matter how you look at it, BQI is more likely worth a whole lot more than it is selling for in the market today.  Sure there could be ups and downs - and more giant corrections - but if oil goes up much higher, which I firmly believe will happen long-term, or if BQI has anywhere near the amount of recoverable oil as they say they have, I believe the stock is at least a double from here.