Joanne A. Hruska, CFA Arcan Resources Ltd. ARN-X(dead) DON'T BUY May 14, 2013

Has declined 50% below one of his moving averages and has underperformed over 70%. Ranks 480 in his model. Expected to earn $.06 in 2013 giving a PE multiple of approximately 24 times. There are others that have more visible opportunity to end up making decent money.

An Alberta light oil play. Ventured into the Swan Hills in late 2010 and were very aggressive in their capital program by spending about $150 million. Expected to generate $50-$60 million in cash flow. Costs in the Swan Hill area has gone up significantly so economically these wells were less than expected and also payout in barrels was slightly less. Had also been hit with light oil differentials and bad weather. Generated a very high debt level.

He would be very cautious on this one. The small cap model on oil and gas for the time being is somewhat obsolete because the capital intensity has gone up very materially and at the same time, many companies have over leveraged themselves. Debt to cash flow is now over 4 times. You are essentially counting on them to be taken out, if that were to come to pass, you have a good premium but the risk is too high.

Arcan is a traditional junior, Neighbors to Pengrowth but they don’t look at them as an acquisition candidate. Not as enthusiastic about it. Expensive and he questions the internal rates of return.

Chart shows a bit of support that was broken earlier this year. A possible head and shoulders bottom may be forming. He looks for neckline breakouts. If the current neckline is broken, he could see a target of right in around $4 or so.

Raised a lot of money and made a lot of acquisitions but have a lot of debt on their balance sheet. Production costs were much more than anticipated.

Really quite concerned because of their debt situation. Debentures are trading at a big, big discount to the principle value. Have a giant overhanging debt. They have assets which he thinks should be sold. Too risky.