🇨🇦 ROK Resources ($ROK.V)

Editors Note: 👋 Hey friends! Sawyer here. I haven’t written a post like this in a while, so if you’re receiving this in your inbox and feel a little confused—it’s because at some point in time you subscribed to my newsletter. Welcome back!

A quick note on this analysis: These are my personal opinions, based on my own research of publicly available information as of July 25th, 2025. I am not a financial advisor, and this is not investment advice. It's important to know that I personally own shares in ROK Resources. This memo is for informational purposes only, and you should always do your own research and consult with a professional before making any investment decisions.

I’ve been interested in oil and gas equities for quite some time now. Since I’ve been following the sector, it has been beaten up, posted horrible historical returns, and seen large capital outflows. This widespread aversion is exactly what makes the sector interesting to me.

As I dove into my research, I was routinely baffled by the sector’s increasing complexity and the significant edge that large trading houses and research firms had.

These big players are able to track global LNG shipments with satellite data, use synthetic aperture radar to see through clouds and monitor thousands of storage tanks, and build complex weather models to forecast energy usage. As a solo investor, I quickly understood that I could not realistically compete when it came to predicting the price of oil or the sentiment of the market.

After realizing this, I went back to the formula that I knew best: investing for value.

So now, I seek to find the answer for two simple questions:
1. What is the business worth?
2. Can I buy it at a significant discount to what it’s worth?

Today I’ll be highlighting one company in particular that I believe trades at a significant discount yet has remained largely unnoticed. From my understanding, this post will be the first publicly available long-form analysis ever written about the company.
 
That company is ROK Resources, a small Canadian oil and gas producer with a ~$42M market capitalization.

Since going public in 2020, they’ve grown from ~150 barrels of oil equivalent per day (boe/d) to over ~3900 boe/d as of Q1 2025.

They’ve achieved this growth through a series of acquisitions along with successful drill programs. ROK historically took on a lot of debt to fund growth. Since then, they’ve retired over $85M in debt, had ~113M dilutive warrants expire, and are now completely debt-free. Being newly debt-free and avoiding excessive dilution has fundamentally changed the quality of this company, yet the market hasn’t flinched.

Let’s dive into some financials so you can get a better idea of why I like this company so much. I’ve built a 5-year projection, using very pessimistic and conservative numbers.

The model assumes the company doesn’t actually grow and stabilizes production at 3700 boe/d, with an annual spend of $12.6M to keep production steady. It also assumes a pessimistic US$65/barrel, a 10% share buyback, and a larger than normal $4M/year spend on asset retirement obligations (ARO).

This is likely much too conservative of a model but the numbers still look great.

To summarize, ROK Resources could literally do nothing but maintain existing production for 5 years yet:

• ~49.2% of public float could be bought back

• Shareholders see a potential 110% return

• CAGR of 16% per year

• $20M in ARO liabilities are paid down

• $47.6M of cash could build on the balance sheet (more than the entire company’s current market cap)

It is difficult to find companies like this at such a discount. Keep in mind ROK has 168,500 acres of land and well over a decade worth of oil and gas reserves at current production levels. They could keep this machine running for a long time.

Also remember that this is kind of a “worst-case” scenario, it’s unlikely the management team sits and does nothing for the next 5 years. They’d have torque to the price of oil, would ramp up production in higher pricing environments, and real returns would likely to skew much higher than the model’s estimate. I wanted to be very conservative as the goal of the model was to make it abundantly obvious that ROK trades at a deep-discount relative to its intrinsic value.

Now let’s dive into some non-obvious benefits. ROK Resources has a few catalysts that I haven’t touched on.

The first catalyst is ROK’s ~17% ownership stake in EMP Metals Corp. ($EMPS.CN). This has the potential to be a massive future liquidity event, which I believe could one day be worth more than the entirety of ROK’s current market capitalization.

EMP Metals owns a world-class lithium resource in Canada, located right in the same area in which ROK Resources operates. They completed a Preliminary Economic Assessment (PEA) and found their resource to have a pre-tax net present value (NPV) of ~$1.49 billion US dollars.

However, I believe this estimate to be too high as the assessment was done when the price of battery-grade lithium carbonate was ~US$20,000/per tonne. A more realistic pre-tax NPV would land closer to ~$866M US dollars as current lithium prices have declined. Regardless, owning 17% in a resource like this is a valuable asset.

Currently, on a mark-to-market basis, ROK’s stake in EMP Metals Corp is worth ~$6M.

This low valuation stems from the fact that EMP Metals Corp isn’t producing yet and it’s project is not planned to come online until ~2029. A pilot project, feasibility studies and construction still need to be completed. With all of this being said, ROK’s ~17% ownership still represents major upside if they retain future ownership and don’t get diluted down.

The second potential catalyst is a lawsuit ROK Resources filed against Canadian Natural Resources Limited (CNRL) in 2024. CNRL didn’t transfer assets that ROK bought back in 2022 due to concerns of ROK being unable to meet financial obligations. ROK affirms that this was a breach of contract and failure of duty of good faith from CNRL.

I have strong conviction that ROK Resources will be able to win this claim given their financial position and performance both at the time of the dispute and afterwards.

While no actual amounts were revealed to the public, I did some digging and believe these withheld assets represent ~150 boe/d of production.

Over 3 years have passed since the acquisition. ROK should be entitled to the lost revenues that they have incurred.

If we do some back of the napkin math using a conservative $35/boe netback, we can see that: (150/boe/d x $35/boe x 365 days x 3.4 years) = ~$6,515,250

This means that ROK could see a pretty substantial payout relative to their market capitalization. If they were to settle for even $5M in damages that would represent ~12% of the current market capitalization of the company. So as a shareholder, I’m happy to see some potential hidden upside from this claim.

I’ve touched on a lot of positives, but I think it’s only fair to also mention some risks associated with the company:

• Commodity Price Risk: This is the most significant and obvious risk. Earnings are tied directly to the price of oil.

• Asset Retirement Obligations: Every oil company in Canada is required to clean-up old sites and wells. These are called asset retirement obligations (ARO). ROK has a discounted ARO of ~$17.9M but used a 12% discount rate to arrive at that number. The reality of the situation is that they have a $63.8M liability. Given its market-capitalization, that number might seem daunting. However, this liability is spread across the next 20 years. ROK spends a few million a year paying down its ARO liabilities and is in a great financial position to continue doing so. Nonetheless, it’s the weakest area of the company in my opinion and I’d like to see them put at least $4M/year towards ARO moving forward.

• Micro-Cap: ROK Resources is a very small company that trades on the TSXV. I’ve personally noticed lots of price volatility due to fairly low trading volumes. On a stock that trades at ~$0.19/share, something as small as a $0.02 change to the downside equates to a potential -10.5% loss. High volatility and risk is almost certain with micro-caps like ROK. Be aware of downside risk.

Management is the last piece of the puzzle I’d like to talk about. I like to look for companies that have honest and capable management teams. ROK’s leadership team fits the bill perfectly.

The three key players are Cam Taylor, Bryden Wright, and Jared Lukomski.

These guys aren’t new to this. They’ve worked together to previously scale and sell four junior oil and gas ventures for a cumulative total of ~$458M. They’ve shown a prudent ability to do accretive M&A deals while managing ROK, along with financial restraint and discipline when it was needed. All in all, I’m very confident in them moving forward.

They've also shown integrity and alignment. They voluntarily agreed to forfeit 11.9M of their existing stock options and instead receive cash-settled RSU’s to avoid excess dilution. While doing so, they created mandatory management structures in order align incentives with shareholders:

• The CEO must hold no less than 3x their salary in stock.

• Officers must hold no less than 2x their salary in stock.

• Directors must hold no less than 3x their annual board retainer.

This structure re-aligns incentives and creates a culture where management wants shareholders to thrive because they own a large number of shares too.

They get my stamp of approval for that.

As you might be able to infer, when I do valuation, I scrutinize companies heavily. I thought something must be wrong with ROK Resources. I couldn’t understand why it traded at such a discount. My only conclusion is that I think ROK Resources represents a structural market inefficiency. It is simply too small and too illiquid for most institutional funds to build a meaningful position. This forced neglect from capital pools has, in my opinion, allowed it to go completely unnoticed and mispriced.

I’ll conclude by attempting to answer the two questions I set out to answer at the start of this post.

1. What is the business worth? 
Here’s what I was taught: Whenever you buy a share of a company, you’re not just buying a stock ticker. You’re buying a small piece of a real business. The price you pay today is for your share of all the cash that business will generate for the rest of its life.

So, with 10+ years of drilling inventory, a base of $19M/year of FCF @ $65/WTI, multiple catalysts, and great buyback potential, we can start to make some inferences.

Let’s say we look 5 years out and build a little DCF model using a 10% discount rate.

Y1: $17.27M
Y2: $15.70M
Y3: $14.27M
Y4: $12.98M
Y5: $11.80M
——————
Total: $72.02M

So just from a basic model, using a 10% discount rate to adjust for risk, we can see that the company is roughly going to spit out ~$72M dollars. Without going into too much complexity about oil and gas valuation, terminal value, reserves, EV/EBITDA, and M&A multiples; I believe this is much closer to where the business should trade at today. Even at this price, it could be argued that it’s still undervalued relative to most companies on the market.

I like to look at things on a larger time horizon when doing due diligence. I firmly believe that ROK Resources will become a $200M+ company in time, as long as they can avoid getting acquired by a larger firm or selling the business. However, this write-up is already getting quite long so let’s stick with this $72M figure for the sake of simplicity and move on to the second question.

2. Can I buy it at a significant discount to what it’s worth?
This is always the more obvious of the two answers. At a $42M market capitalization, ROK’s shares are trading at a deep discount. In just a few years the business could easily buy back the majority of the public float and have more cash on the books than what the company currently trades for. For that reason, I have happily added this company to my personal portfolio.

While I believe this is an obvious multi-bagger, I’m not looking for share price appreciation today, tomorrow, or next month. I couldn’t care less. I hope the company continues to go unnoticed so I can pick up more discounted shares over time. I can sleep at night even if things don’t look great and I’m more than happy to wait a few years to see price appreciation.

That’s the beauty of value investing.

With that being said, thanks for reading! I hope you enjoyed! I’ll try to write posts more frequently moving forward.

Disclaimer: The preceding is a personal investment memo and represents the opinions of the author. I am not a financial advisor and do not hold any professional financial designations for providing investment advice in Canada or any other jurisdiction. Please note that I am a current shareholder and have a long position in ROK Resources Inc. This document is for informational and educational purposes only and should not be construed as a recommendation to buy or sell any security. All investors should conduct their own independent research and consult with a qualified financial professional before making any investment decisions.