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Very Pleased with Equal Energy sale of Lochend

On Friday Equal Energy announced the following:

Equal has sold its Lochend Cardium assets for cash consideration of $62 million, effective October 1st 2012.  The assets sold include current production of approximately 525 boe/d (93% light oil) based on the most recent 30 day average, related infrastructure and undeveloped land.

The sales price equates to $118,000 per flowing barrel.  At the end of 2011 proven and probable reserves at Lochend were 1,621 mbbl of crude oil, 2.6 Bcf of natural gas, and 64.8 mbbl of NGL.  Using those numbers, the disposition went for $29/boe of P&P.  However successful drilling has been done at Lochend since that time so their will undoubtedly be higher reserves attributed to the area when the year end reserve report is completed, so take that number with a grain of salt.

The sale removes the last of the Canadian land assets.  All that is remaining now are royalty interests that I would imagine will sold in short order.  Together with the sale of the Mississippian interest, and the Viking land at Halkirk, Equal has reduced its debt down to a minimal amount.

The company also mentioned that they expect to move to some sort of income generating format once the sales are complete.

Equal’s Special Committee of the Board of Directors and management are moving to the final step in the Strategic Review Process to finalize the go forward strategy for the Company. A Canadian Trust, US Master Limited Partnership and an Exploration and Production Corporation are all being considered

The company said they expect to have the review complete by the end of November.

So let’s take a quick look at what we have with Equal.

The Haas Report, which was the 2011 reserves summary attributed total proved and probable reserves of 499 Mbbl of crude oil, and 108 Bcf of natural gas and 13,931mbbl of NGLs to the Hunton.

With the uncertainty of the asset sales out of the way, I have to think that Equal moves significantly higher from here.  I don’t know how the stock will open tomorrow, but if it is anywhere below $3.50 I will be adding to my position.  I have been looking around for natural gas weighted E&P’s to play a potential upturn in natural gas with.  I have not found a company with the valuation metrics of Equal.

Equal has always been very cheap, but there have always been reasons to doubt that would change.  Those reasons have slipped away one by one.  One has to be clear of the upside.  The stock could easily open around $3.60 tomorrow, which would be a 20% gain on the day, and yet its my opinion that an eventual move to $5 or $6 per share is not out of the question.   Which makes that 20% move not so unreasonable.

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2 Comments Post a comment
  1. Dave #

    What will be the company’s updated bank line?

    November 4, 2012
  2. sculpin2 #

    I believe the Company has estimated that the bank line will be around the $110 million level.

    November 5, 2012

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