Antares Energy flags sale of its Texan oil assets for $US300m
by: Criterion
From: The Australian
June 27, 2013 12:00AM
Antares
Source: The Australian
WHEN it comes to valuing small-cap oil juniors operating in the US, punters have been reluctant to ascribe the lofty multiples implied by recent asset sales.
After revealing a $US300 million ($323m) letter of intent to sell its assets in the sexy Texan Permian basin yesterday, investors took a "meet you halfway" approach: they bid the stock up 20c, or 70 per cent, valuing Antares Energy (AZZ, 48c) at $122m. The reticence is understandable as an LOI isn't a case of LOL-ing all the way to the bank, in that the cheque is a long way off.
Our US oil juniors, notably Richard Cottee's Austin Exploration (AKK, 1.4c), have long complained that the market hasn't been valuing them properly.
This deal, if executed, should provide succour, although it's a moot point whether $US300m is a bonanza or a fair price.
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As Antares' neighbour Target Energy (TEX, 6.1c) notes, the Permian basin is fast becoming the most important oil province in the US, chugging out 1.3 million barrels a day.
Giants such as Occidental, Pioneer, Apache Energy, Exxon Mobil, Chevron and of course BHP Billiton are all active Permian players. In January Pioneer sold its Permian ground to Sinochem for $US1.7bn and in March Comstock flipped its assets to Rosetta Resources for $US768m.
According to RBC Capital markets, the five most notable deals in the Midland sub basin (the most pertinent to Antares) valued the ground at anywhere between $US700 and $US102,703 an acre.
On our back of the envelope, Antares' acres are valued at $US10,000.
Just as they value oversized headwear, Texan oilmen like to talk about vast tracts of land. But just as oils ain't oils, acreages aren't acreages in terms of prospectivity and production.
Then there's valuation relative to production: according to a recent Target prezzo, eight recent Permian asset sales have been priced at an average of $US110,708 per barrels of oil equivalent per day (BOEPD). Antares has gross output of 2500 BOEPD, implying a price of $US120,000.
Some gadflies, including StockAnalysis analyst Peter Strachan, prefer to size up asset prices relative to reserves.
Ahead of yesterday's surge, at $US3 per barrel of 2P (proved and probable reserves) Antares was "remarkably" lowly valued relative to Aurora Oil & Gas (AUT, $2.81), which has similar "potential resources" and a $1.25 billion market cap.
With the bravado of a Dallas Stetson-wearer, we'll risk a spec buy on Antares on the assumption of a deal being finalised.
Target remains a spec buy by virtue of its lowly $27m market cap, backed by generous Permian acres and modest production.
Another one to watch, Molopo Energy (MPO, 22c) has pulled off lucrative North American asset sales in the past but has had recent production and drilling woes. With its Wolfcamp (Permian) ground subject to a sale or a farmout, Molopo could pull off a valuation surprise
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