GeoResources: Likely To Be A Prime Takeover Candidate

| About: GeoResources, Inc. (GEOI)

GeoResources Inc. (NASDAQ: GEOI) is an independent oil & gas company primarily focused on the Bakken and Eagle Ford shale plays. After a recent dramatic sell-off, the company closed trading yesterday at $18.15. The 52 week high set back on March 3rd was $32.94. The 52-week low was set on Tuesday of this week at $14.56. The stock sports a P/E=14.7 and produced latest yearly earnings of $1.23/share. With 25.47 million shares outstanding, the company's market cap is $462 million.

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Geo recently released an operations update and 2011 and 2012 production guidance. Highlights include:

Eagle Ford:

  • The company currently holds 25,000 net acres in the Eagle Ford.
  • Average 30-day daily production of 3 producing EF wells is 408 boe/d.
  • Plans to spud 21-24 gross wells in EF in 2012 (8.7-9.6 net).

Bakken:

  • The company currently holds 35,000 net acres in the Bakken and eastern Montana.
  • Average 30-day daily production of 4 producing Bakken wells is 297 boe/d
  • Plans to spud 23-26 gross wells in Bakken in 2012 (7.7-8.2 net).
  • GeoResources has participated in over 100 wells with Slawson Exploration with a 100% success rate.
  • The company continues to participate in a number of very productive non-operator wells in the Bakken (see update for oil production numbers).

Other:

  • Austin Chalk: West Cannon Unit #1H well is a strong producer: 696 bo/d and 2,036 mcf/d (1,035 boe/d) in its first 31 days of production
  • Plaquemines Parish, Louisiana: SL 195 QQ #365 well (22% W.I.) is currently producing 1,009 bo/d and 1,211 mcf/d (1,211 boe/d) with a flowing tubing pressure of 5,600 psi.

Production Guidance:

  • Expects full year ended December 31,2011 production to be between 5,000 and 5,500 boe/d being 61-65% oil.
  • Expects full year 2012 production to range from 6,500 to 7,500 boe/d being 70-75% oil.
  • Even if the company comes in at the low-end of those projections, year-over-year production growth would be 30%! Not too shabby for a stock with a P/E less than 15. It's also clear the company is focusing on increases its oil production and saving the cheaper natural gas for another day.
  • GEOI has a strong balance sheet and excellent cash flow. Latest quarterly earnings (ended June 30) were $0.34/share which beat street estimates by $0.02.

It is clear GEOI is a proven oil producer, has alot of in-house expertise, and will continue to grow production (and earnings) at a very nice rate. However, consider that Marathon (NYSE:MRO) recently paid nearly $25,000/acre for Eagle Ford property. This would value GEOI's Eagle Ford holdings alone at $625,000,000. That is substantially more than the entire market cap of the stock today! This doesn't even count current production rates and the 35,000 acres of Bakken property.

Don't be surprised if a bigger oil company snaps up GeoResources for substantially more than today's closing price. This company could easily fetch triple its current market value, which would put a buyout at nearly $50/share or around $1.3 billion. Makes you wonder why Marathon didn't take a closer look at GEOI before buying Hilcorp's EF acreage for such a high price. Or maybe a company like Hess Corporation (NYSE:HES) or ConocoPhillips (NYSE:COP) would be interested in GEOI. Time will tell.

U.S. policymakers continue to bet on the electric car to solve our foreign oil dependency problem. Well, those of us without rose coloured glasses on know that ain't gonna happen. Therefore, the future holds much higher oil prices. What better way to play this long-term trend than to own a company which is a proven producer, an efficient and low-cost operator, and has a plethora of proven domestic oil reserves and acreage? GEOI is such a company. Even if the stock is not bought out, it could easily trade up to $25-$28/share over the next 6-12 months.

Just today analysts at C.K. Cooper lowered their price estimate on GEOI from $35.00 to $28.00. The analysts now have a “buy” rating on the stock. So do I. Good luck to those of you in and out of the oil patch.

Disclosure: I am long GEOI.