Compton Petroleum: Asset Sales Misses Target

Sometimes, less is more. Compton Petroleum Corp. (CMZ), in its quest to focus on relatively pure unconventional natural gas plays and dress itself up, has sold four of the five assets it put on the auction block, but will pocket less cash than expected. It received bids on all five non-core assets, but only accepted four of the offers for a total of C$218-million.  

Terry Peters, an analyst at Canaccord Adams, expected Compton to rake in C$250-million. The money will be used to pay down debt.

In a research note published Thursday, he said:

This implies that, on average, Compton received $59,000 per flowing barrel versus an industry average transaction value of $63,000 per flowing barrel in the first and second quarter in Canada.

Despite the lower payday, Mr. Peters is not fretting because a stripped down version of Compton could help it sell itself. It announced plans to do just that on June 11.

He said:

The formal announcement of the sale is expected to shift investors’ focus onto the valuation of the company’s assets and the potential for competing bids to drive the price higher.  Sale of non-core assets should make the company’s valuation clearer, and reduction of debt should make it more appealing to potential buyers.

Mr. Peters’ conclusion? Buy, with a C$15 price target.

Comments

[richjoy]

Frankly, I was hoping for a sale of CMZ at a price at least 50% greater than $15.

[steve Ward]

So much for CMZ's own valuation of $19.00 per share just 18 months ago on lower gas prices.Apparently, some unconventional properties in CMZ's portfolio are not valued by the open market as much as CMZ thought them to be.

When the stock hit high 7's and low 8's my valuation model put it at 12.00 to 14.00 Canadian per share. And we are there. The only need to hold is in the hope of a small miracle, otherwise sell now.

[richjoy]

Steve-- you may be correct. Maybe I'll compromise and sell 1/2 my position.