Even though oil is trading at a ratio approximately 25.7 times higher than the energy equivalent 6:1 ratio, the market is still showing natural gas operators love – predominantly Marcellus Shale producers.
As of October 2012, EnerCom’s Marcellus Shale peer group was trading at an average 2012 P/CFPS of 11.6 times. This compares to its GOM and Bakken shale peer group trading averages of 3.3 times and 6.2 times respectively. Click here for the chart. Why the generous multiple? A few notable reasons: low finding and development costs and huge inventories of liquids rich natural gas reserves.
Let’s look at a few leaders in the play. Cabot Oil & Gas (ticker: COG) just announced its gross production in the Marcellus shale hit 1 Bcf/d. The company’s 3-year finding and development cost, by our calculation using an all-in number, is approximately $1.30 per Mcfe.
Range Resources (ticker: RRC) has diversified a portion of its assets outside of the Marcellus Shale but its primary growth drivers remains in the Marcellus. Range’s 3-year finding and development cost is $0.84 per Mcfe and the company has replaced nearly 770% of its production over those three years.
Statoil Makes Big Move into the Marcellus
Statoil (ticker: STO), the Norwegian company that made its entrance into North American unconventional resource plays through the outright purchase of Brigham Exploration in the Bakken, its partnership in the Marcellus with Chesapeake Energy (ticker: CHK), and its 50% ownership of Eagle Ford assets with Talisman Energy (ticker: TLM), has acquired 70,000 operational acres in the central Marcellus Shale play, valued at $590 million.
Current equity production associated with the acquisition is approximately 5,000 BOEPD (30 MMcfe/d). The asset acquired are primarily in Monroe County, Ohio (most likely prospective for the Marcellus and Utica) and Tyler, Wetzel County and Harrison Counties, West Virginia (focused on near-term Marcellus operations). Based on the purchase price, the transaction is valued at $8,430 per acre or $19,666 per flowing Mcfe/d. As of December 14, 2012, taking the average of our Marcellus peer group mentioned above, on an enterprise value to trailing twelve months production metric, our Marcellus peer group is trading at approximately $15,175 per flowing Mcfe/d.
Statoil’s purchase was right in the heart of Marcellus activity from operators both big and small.
This transaction provides significant validity to Trans Energy’s (ticker: TENG) wet-gas acreage position in the Marcellus Shale play – predominately in West Virginia. See map below. Trans Energy, along with its JV partner Republic Energy, has assembled a footprint covering more than 62,000 gross acres in Marshall, Tyler, Wetzel, and Marion Counties, West Virginia since 2007. The company reports gross resource potential up to 3 Tcf. First and foremost, TENG plans to prove up its core acreage position in the Marcellus. The company has identified 178 ready to drill locations.
Source: Trans Energy Inc.
[sam_ad id=”32″ codes=”true”]
Magnum Hunter Resources (ticker: MHR) is also active in this area of the Marcellus. Back in October, MHR acquired Viking International Resources, a private company with approximately 51,500 net acres primarily in the Marcellus and Utica plays, for $106.7 million. Pro forma, MHR has over 85,500 net acres in the liquids-rich Marcellus Shale and 81,800 net acres located within the Utica Shale. Since May 2011, approximately 17 Utica acreage acquisitions/divestitures have averaged $4,741 per acre. Magnum Hunter plans to ramp up Marcellus drilling during December and into 2013 as its processing facilities begin to come online. Click here for the previous write-up on MHR.
Source: Magnum Hunter
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication.