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Equal Energy Ltd. Message Board

  • Navarre2 Navarre2 Nov 14, 2011 8:51 PM Flag

    Discount per flowing barrel, US/Canada split

    Follows is a EV/flowing barrel comparison of EQU to comparable Canadian energy producers, I have selected companies with a similar production profile (Oil/Gas mix):

    ARX (57% NG) : $99,000 per flowing barrel
    DAY (59% NG): $76,000 per flowing barrel
    ZAR (43% NG): $57,000 per flowing barrel
    PGF (49% NG): $66,700 per flowing barrel
    NAL (52% NG): $66,500 per flowing barrel

    Average: $73,000 per flowing barrel.
    Also if I may add, the whole intermediate producers universe in TD coverage trade at $97,200 per flowing barrel.

    As for Equal :

    EQU: (48% NG): $35000 per flowing barrel (this is using Q42011- 9800 Bpd exit production estimates, and net $165m debt).

    Based on the above EQU is trading at 53% discount to its peers, and 64% discount to its sector, it is also worth noting that discount cannot be explained by the company debt load, reserve life or quality of reserves, at each metric EQU is comparable or at times superior to the industry.

    It is also worth adding that we are not even discussing American E&P valuations, which for shale oil companies can easily go into the $300,000 per flowing barrel!; actually by looking at this valuation gap it maybe wise for Equal management to split Equal into 2 companies, one US traded name funded with Hunton cash flow and with access to an exciting Mississippian shale oil asset, and a Canadian producer focused on the Cardium & Viking plays and possibly having a dividend component.

    By all means, it seems to me that the company current model is not attracting the proper investor base, Canadian investors are more interested in Canadian assets and have a stronger preference for dividend payments, ie: a total return model that includes both some growth and dividends (many of the ex-trusts adapted this model); while US investors who are interested in the Mississippian type plays are not necessarily interested in the Canadian operations. As a matter of fact the US operations are already held by Equal as separate corporate entity; which I believe makes a spin off less complicated from a legal stand point.

    By all means, no matter which direction the company chooses, I don’t believe the markets are buying the premise that Equal will be a fast growing E&P company; while I do believe a JV in the Mississippian would certainly unlock value and catapult the stock higher; a total re-thinking of the Canada/US mix is worth discussing.

    I welcome fellow shareholders input on the issue.


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    • I agree on $35,000 calculation per flowing barrel a day.

      But 48% NG? I thought company was mostly NG and NG liquids with very little oil (maybe 10-15%).

      Market cap and debt are nearly equal in value. Isnt this still a bit high compared to peers?

      One benefit will be a reduction of interest expense of $3.2 million a year or over .10 per share to earnings.

      • 1 Reply to igottaken
      • 48% refers to dry gas only, NGLs are tied to crude, , investment banks usually account for crude and NG liquids under the same category (liquids) the peers comparison I did was based on such classification, but if you want the exact divided, it is about 22% crude, 30% NGLs, and 48% NG.

        In regards to debt/cash flow EQU ratio after the sale is 1.9 for 2011, which is within the industry average (2.1 as per Scotia capital, 1.8 as per TD Securities).



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