The following is an extract from the report.
ExxonMobil Enters the Duvernay
Energy giant ExxonMobil (NYSE:XOM) recently announced its acquisition of TSX listed Celtic Exploration Ltd (CLT) for $2.9bn. As a result of the transaction, XOM has secured 104,000 acres in the Duvernay shale which we believe provides a compelling endorsement of the play and MKE s assets.
Furthermore, we believe the recent corporate activity will support MKE s current farm-out activities. We maintain our Speculative Buy recommendation with a slightly revised price target of $0.41/share (previously $0.42/sh).
ExxonMobil (XOM) acquires Celtic Exploration (CLT) for $2.92bn.
On 17 October 2012, XOM acquired shale producer CLT for ~$2.9bn. The transaction included 545,000 acres in the Montney shale and 104,000 acres in the Duvernay shale which is MKE s flagship play.
This is the largest acquisition by XOM since its $35bn purchase of XTO Energy in 2010 and XOM s largest acquisition in Canada. We believe the XOM acquisition of CLT which comes on the back of Sinopec s acquisition of Daylight Energy (~2.1bn) provides a compelling endorsement of MKE s Duvernay acreage (34,080 acres).
Strengthens position of MKE s farm-out activity.
We believe the XOM deal strengthens MKE s current farm-out activities. In our view, other major/mid-tier oil and gas players will be encouraged by XOM s entry into the Duvernay given XOM s expertise and scale in the unconventional space (accounts for ~22% of XOM s 87bnboe resource base).
Therefore we expect future corporate and farm-out activities to increase in the unconventional oil and gas Canadian space which should support MKE s farm-out activities.
XOM deal highlights MKE s steep trading discount.
It is difficult to imply a straight seethrough value for MKE based on the XOM deal given the majority of the acreage acquired by XOM was in the Montney shale (545,000 acres in the Montney shale and 104,000 acres in the Duvernay). In addition XOM acquired reserves of ~128mmboe 2P.
However, we estimate the XOM deal implies an EV/acre value of ~$3,880 while MKE currently trades at an EV/acre value of ~$531 highlighting the significant upside to MKE s share price.
Strengthening management team.
MKE has continued to strengthen its management team with the appointment of Stuart Keck as Chief Operating Officer (NYSE:COO) who oversaw production growth at Centrica Canada from 5,000 to 22,000boepd.
In addition, Malcolm Bult has been appointed as Executive Advisor to MKE. Mr Bult played a critical role as Commercial Manager in the highly successful Aurora Oil and Gas Ltd (AUT).
We maintain our Speculative Buy recommendation with a slightly revised price target of $0.41/sh.
In our view, XOM s acquisition of Celtic should increase the market s awareness of the Canadian oil and gas space while also highlighting the cheap entry into the Duvernay which MKE provides.
The key catalysts going forward for MKE include: 1) Farm-out transaction 4Q 12/1Q 13 and 2) Spud of Duvernay horizontal well by Black Swan Energy (4Q 12).