Pinnacle Gas Resources: Purest of the Pure Gas Plays

Welcome to new gas player Pinnacle Gas Resources (PINN)!

• New PRB CBM [Powder River Basin Coalbed Methane] player formed out of Carrizo Oil & Gas Inc. (CRZO), Gastar Exploration Ltd. (GST) and Marathon Oil Corp. (MRO) assets and spare change from Credit Suisse.
• Large primarily undeveloped leasehold (308,000 net acres) mostly in the Powder but with about 10% in the Green River Basin. 5,000 locations identified.
• 25.9 Bcf proved reserves (which is up from about 20 Bcf as of YE06, largely due to gas prices).
• Lost 5.5% on opening day (May 15th). I wonder why?
• Massive premium to NAV [Net Asset Value].
• 28.9 million outstanding post-deal X $9/share + working capital gets you TEV [Total Enterprise Value] of around $225 million.
• I get an NAV of just over half that if I'm fairly generous with the value of their in ground reserves and undeveloped acreage.
• Steep cash flow multiple relative to peers, despite the fact that PRB here is lower R/P [Ration of Proven Reserves] than a lot of the gassy "long reserve life" players.
• You get to wait the usual 30 days for Street coverage.
• Once this seasons a bit it'll be a good, though thinly-traded proxy for Rockies natural gas, replacing the old Evergreen Resources as the purest of the pure gas plays.
• Verdict: I'm waiting for the coverage to start, and then waiting some more. They plan to drill 200 to 400 wells per year, which should yield decent reserve growth, but hasn't in the past. They also own rights on a majority of their acreage to explore for conventional oil and gas at deeper depths than the coal formations. This one is worth watching.