Energy Partners Suffers Strategic Alternatives Disappointment

After a well-publicized strategic alternatives process failed to result in the sale of the company, stock price dropped sharply for buy-recommended Energy Partners (EPL). Yet oil and gas properties have real value as we saw recently in the purchase of Dominion Resources’ (D) Gulf of Mexico properties at $4.92 a barrel, compared to our estimated present value of $4.80 a barrel for EPL.

Reported on May 3, latest quarterly operating and financial results support estimated Net Present Value [NPV] of $33 a share. Chairman Rick Bachmann and his team are redirecting efforts in 2007 to emphasize development around existing discoveries, including the promising South Timbalier area as well as resources discovered last year, but not yet booked as proven reserves.

A recently completed self-tender for shares has no effect on McDep Ratio while it increases NPV and increases debt. Carried at a half unlevered weight in the illustrative McDep Energy Portfolio, EPL ought to participate in the newly resumed uptrend for long-term global natural gas and oil price.

Originally published on May 4, 2007.

EPL 1-yr chart: