Rapidly changing market conditions caused management of buy-recommended Encore Acquisition Company (NASDAQ:EAC) to end the process it had announced that might have resulted in the sale of the company. In anticipation, stock price reached estimated net present value [NPV] of $75 a share, but has since declined sharply along with prices of peer companies.
Released late in the evening of August 5, combined with the announcement of discontinued strategic efforts, second quarter results met or exceeded our expectations. Projected volumes along with August 4 futures prices promise a high level of unlevered cash flow (Ebitda). Projected cash flow capitalized at unlevered multiples (PV/Ebitda) related to reserve life (Adjusted R/P) supports NPV.
Though down a few dollars in the past few days, long-term crude oil price remains in an uptrend where today’s settlement of $116 a barrel for delivery over the next six years is above the 40-week average of $104. In the earnings release, EAC announced its highest single well flow rate in corporate history, 12.7 million cubic feet equivalent daily, in a well in its West Texas Joint Venture with buy-recommended Exxon Mobil (NYSE:XOM).
Originally published on August 6, 2008.