INA vs IAE -
There is significant risk with Ithaca since Athena is underperforming. It is all but certain that one Athena well will require an expensive workover. And since they have 3 wells with similar design, potential for needing workovers on each well is high. Additionally, production is down qoq, which is totally unexpected development, as Athena was on for half the quarter, mostly at high rates. Rates "should" have nearly doubled.
I think the market remains blissfully ignorant of the potential problems with Athena. And falling production qoq even with big bump from Athena means older fields are under performing. Q3 will likely see continuation of poor performance -
I think IAE is risky at current prices due to Athena issues - and I was a big fan of Ithaca before Athena issues cropped up. I sold a large position on the news and will not re-enter until there is clarity.
INA will do a farm out - no equity. Anywhere from 30-50% depending on if they want to fully fund Orlando and Kells together or separately.
The problem with INA is that they now say Q1 '14 production at Orlando. In the last 3 months, production has slipped a year due to rejiggering start up of Kells and Orlando.
That said, at current ~$35MM EV, very hard to see downside risk considering NAV >$700MM (including $90+MM cash). Plus cash flow will zoom over $200MM when Orlando is online (and close to $300MM with Kells). They are trading at a huge discount to Proven reserves (16MM boe), let alone 2P (33.5MM boe).
Farm out process is on-going and expected to conclude mid Q4. Then expect credit facility to be increased and finalized (hoping for boost in facility based on increased Orlando ownership). Then about the same time, we should see results from the Trent 5z well (previous well produced as high at 20MMcfd), closing of the West Wick purchase, plus potential for sizable bid round awards with existing reserves should provide catalysts over the next few months.
I think INA will be a multibagger. Whether it is only 2x or 5x, only time and execution will determine. But I see it as one of the best risk-rewards around and am investing accordingly. For such returns, I am prepared to be patient. And should we see some year end tax loss selling (I hope we do), I'll add even more.
AI
