New Concept Energy: A Highly Undervalued Utica Shale Play

Mar.14.12 | About: New Concept (GBR)

$5 million market cap low-float play New Concept Energy (NYSEMKT:GBR) currently owns mineral rights to 20,000 acres in Athens and Meigs Counties in Ohio and in Calhoun, Jackson and Roane counties in West Virginia. These counties are in the heartland of the emerging Utica Shale energy play. Utica Shale is the natural gas giant below the Marcellus Shale. The Utica Shale is thicker than the Marcellus, it is more geographically extensive and it has already proven its ability to support commercial production. The 20,000 acres are both surrounded by and interspersed with hundreds of existing wells, of which 121 producing wells are owned by the company.

On February 17, 2012 Magnum Hunter Resources (MHR) acquired 12,186 net acres of Utica Shale from an undisclosed seller for $24.8 million. This equates to $2,035 per acre, and makes the acreage owned by GBR valued at 40.7 million dollars - that is 8 times their current market cap!

As of New Concept Energy's most recently filed 10-k (2010), the company had 18,271 million in stockholders equity. If you divide this by the total shares outstanding of 1.947 million shares, this gives it a 2010 book value of $9.38/share. Based on the recent purchase of Utica acreage from Magnum Hunter, I am expecting even higher stockholders equity once the 2011 10-k is filed.

As an example of the value, let's compare book value to one of its peers Magnum Hunter Resources . Magnum Hunter Resources book value based on their (2011) 10-k, is $3.75/share. On March 8, 2012 the stock closed at $6.66 per share which is 77% higher than 2011 book value. This tells me that New Concept International is currently trading at a tremendous discount, and should be trading north of $16.60/share.

This is a small float stock. The total shares outstanding are 1.947 million, and as of March 7, 2012 form 13-D, 868,898 shares are owned by insiders, so the float is only 1,078,102.

Disclosure: I am currently long GBR, and am looking to add more.