As we all know, Gary Evans likes to cherry pick distressed assets. He feels, and rightfully so, that he can achieve a better rate of return in the long run if you buy assets are rock bottom prices, even if they are small and underutilized or underperforming. Many have mentioned TransEnergy (TENG.OB), Gastar (GST) and NGAS Resources (NGAS). I'd like to throw out another possibility. I think they may be looking to acquire the Appalachia production and acreage held by PostRock Energy (PSTR). PostRock is the old Quest (QELP/QRCP/QMLP) entities that were merged together. The assets are on the sale block and are darn close to MHR's acreage. It would be a pricey deal though, because PSTR is likely expecting $2000+ per acre.
I am not sure I am an advocate for the deal or not because I would rather see MHR focus on cobbling together small mom and pop operations that have say 4000 acres and 20 or so shallow conventional wells, rather than buying from a larger corporate entity.
Either way, MHR is likely to announce the 2 acquisitions within the next month or two and we will likely get a nice boost as the deals will likely either bring a good bit of existing production or will bring a good bit of quality acreage.
I think we crack $7/share by year end and likely crack $10/share by end of 2011.
I was talking about just the Marcellus acreage. No one would want the high lifting cost coal bed methane properties in the Cherokee Basin or the Black Warrior Basin. Duhhh.....
I wouldn't be shocked if PSTR sells the acreage for less than $3000/acre. Remember, this is W. Virginia, not SW Pennsylvania. The thickness is different and there aren't really many long lived horizontal wells with which to build a composite decline curve and production profile.
If I were running the show, don't think I'd waste my time trying to acquire a bunch of small Mom and Pops, since they take an enormous amount of time to cobble together and what would provide added value to an already-producing operation? Sure, the pipeline availability would be attractive, but I just don't see the reward. Gary has already told us he wants to pick up distressed properties and by that I figure he means larger-sized properties....something that is under-produced and priced right.
I guess we'll have to wait and see. My preference is to go for the higest accretion, regardless of size. In other words, I'd rather them make a $20 million dollar deal that adds say $.05/share of cash flow vs a $100 million dollar deal that adds $.20/share of cash flow.