Seeking Alpha
Long/short equity, value, REITs, macro
Profile| Send Message|
( followers)  

<< Return to Part 1

BHP Billiton (NYSE:BHP) agreed to pay $15B ($12B in cash and $3B in assumed debt) for Petrohawk (NYSE:HK) late Thursday July 14, 2011. This amounted to $37.25/share. A huge premium given HK closed Thursday at $23.49/share. This effectively raises the prices on all of the oil leases in the major oil shale plays. HK had its acreage spread between the Haynesville, the Eagle Ford, and the Permian Basin. Most of its assets were in natural gas.

The most recent major buys in the Eagle Ford were for approximately $20,000 per acre. The most recent major buy in the Bakken was for approximately $17,000 per acre. These prices are far above the prices of just 1-2 years ago. These were probably $2000/acre or lower. Many oil exploration stocks with lease holdings in these areas are now far under valued on a mark to market basis. A few of the companies that look like attractive buyout targets are: Goodrich Petroleum Corp. (NYSE:GDP), Approach Resources Inc. (NASDAQ:AREX), and American Standard Energy (OTCPK:ASEN).

GDP has 157,000 net acres in the Eagle Ford (40,000 net acres in the oil window). GDP’s 3P Reserves by area are: Eagle Ford (7%), Cotton Valley Taylor Sand (15%), North Louisiana Haynesville (18%), East Texas Haynesville (24%), Shelby Trough / ART (36%), and CV - Vertical (1%).

AREX has 133,000 net acres in the Permian Basin; 4,400 net acres in Cotton Valley; 79,800 net acres in the Mancos Shale (New Mexico); and 40,400 net acres in the New Albany Shale (Kentucky).

ASEN.OB has 30,800 core net acres in the Bakken in North Dakota; 6500 net acres in the Permian in Texas; and 1200 net acres in the Eagle Ford.

These companies might well draw your attention as stand alone investments. However, with the added incentive of possible or even likely buyouts of any or all of them by bigger players, they are that much more attractive. Their share prices will be bid up that much farther. I have only included calculations for the mark to market book values of their Eagle Ford, Permian, Bakken lease holdings. I will use the ballpark figure of $20,000/acre for all three of the Eagle Ford, the Permian, and the Bakken. I have tried to include their other holdings above, although I haven’t attempted to assign values to them. The hyperlinks above will give more information about the specific companies. The table below holds some of the fundamental financial data about these stocks. The data are from TDameritrade and Yahoo Finance. 

Stock

GDP

AREX

ASEN

Net Bakken, Eagle Ford, and Permian acres

157,000

133,000

38,500

Value of net Acreage at $20,000/acre

$3.140B

$2.660B

$0.770B

Market Cap

$0.72072B

$0.77181B

$0.25195B

Enterprise Value

$1.16B

$0.84726B

$0.23357B

Price

$19.97

$27.12

$6.75

1 yr. Analysts Target Price

$25.15

$31.17

$14.00

PE

N/A

121.07

N/A

FPE

15.13

22.60

16.46

Avg. Analysts’ Opinion

2.1

1.9

2.0

Price/Book

4.78

2.3

4.86

Price/Mark to Market value of Eagle Ford & Bakken net acres

0.23

0.29

0.33

Price/Cash Flow

--

27.76

--

EPS Growth Estimate for This Year

90.30%

94.90%

N/A

EPS Growth Estimate for Next Year

980.00%

57.90%

583.00%

5 yr. EPS Growth Estimate per annum

10.00%

20.00%

35.00%

Beta

1.29

1.25

0.71

Short Interest as a % of Float

26.8%

16.02%

--

Cash per Share (mrq)

$1.41

$0.04

$0.49

Total Debt/Total Capital (mrq)

76.00%

18.61%

0%

Quick Ratio (mrq)

0.91

--

--

Interest Coverage (mrq)

--

4.85

--

Return on Equity (ttm)

-98.76%

1.92%

-26.91%

EPS Growth (mrq)

-971.96%

-69.59%

-182.99%

EPS Growth (ttm)

-15.23%

289.22%

88.98%

Revenue Growth (mrq)

1.92%

52.67%

29.67%

Revenue Growth (ttm)

21.80%

47.35%

1.21%

Annual Dividend Rate

--

--

--

Gross Profit Margin (ttm)

81.42%

85.50%

43.02%

Operating Profit Margin (ttm)

-175.33%

13.29%

-362.44%

Net Profit Margin (ttm)

-194.23%

8.31%

-362.44%

As you can see from the information above, all of these stocks are trading below the mark to market book value of their Eagle Ford, Bakken, and Permian lease holdings. This is omitting any other holdings they have, which are substantial in the case of GDP. This means GDP from a strictly value standpoint is an incredible buy. Unfortunately GDP also has trouble paying its rather high debts. This means it could fall prey to shorters in a market downturn, or it could be bought out for much less than it should be. On the other hand it could be incredibly successful soon. Plus the huge increase in the value of its holdings should increase its borrowing power. Since it is forecast to earn $1.32/share in FY2012, it might be wise to get in before the rush.

AREX looks like a great value, and a fundamentally sound stock. It has low debt that it should be able to service easily. ASEN.OB has zero debt, but it has little money to do much else with. Plus it has a strongly negative profit margin. Still it is a strong buy on value alone, and it expects to be profitable in 2011. ASEN.OB should perform reasonably as a long term growth investment. Again all three stocks are great value plays. Their mark to market value of their Eagle Ford, Permian, and Bakken holdings far exceeds their market caps (by 3-4 times). ASEN.OB, while not as good a value play appears to be well run. It has the highest 5 year EPS Growth estimate per annum -- a whopping 35%! You have to love that.

Now let’s look at the technicals via the 2 year charts.

The 2 year chart of GDP:


(Click to enlarge)

The 2 year chart of AREX:


(Click to enlarge)

The 1 year chart of ASEN.OB:


(Click to enlarge)

The GDP chart looks bad as one might expect from the recent fundamental data, especially the debt load. However, it is now a huge value play that it was not 1-2 years ago. It could sell one or more assets to fund itself until it becomes profitable, or it could simply borrow until then. The GDP chart may be the weakest looking of the three, but I think you have to take a chance on the value with at least a small bet, if you can afford to stay in the stock for 2 years. It is a stupendous value play. The AREX stock looks strong. Unfortunately AREX is overbought. If you wish to buy this, it might make sense to wait for it to cycle down; or alternately you could leg in slowly to avoid being a “top” buyer. ASEN.OB is oversold. I have not been able to discern any particular reason for this. I feel it is a good buy both technically and as a value play. You may still wish to leg in. The overall market could turn down at any time due to the credit situation in Europe (and the U.S. until the debt ceiling is raised).

Source: High Growth, Small Cap, Value Plays in the Bakken and Eagle Ford: Part II