As of today we are trading at about $32K per flowing barrel (at 9600 bpd), 2.2 P/CF 2012, about 50% under NAV using the lowest NAV estimation on the street (by Scotia capital and Jennings capital at $8 per share) and about 72% under NAV by using Jennings capital risked NAV of $15).
As a matter of fact the company liquids production alone (4800 bpd) can sustain the current valuation, if we were to fully exclude NG, we would be trading at $65K per flowing barrel, which would put us in line with the sector average which stands at $93K per flowing barrel in 2011 and $65K for 2012.
The market is basically giving $0 value to the company NG production, and $0 value to the company Mississippian acreage.
I believe at some point the company may need to consider strategic alternatives to unlock value, since the market is massively under pricing the assets.
I have just added another 10K shares on the TSX; I believe we are weeks away from a deal/JV on the Mississippian; the weakness in NG prices has probably increased the pressure on the management to extract our Mississippian crude.
Who is under-performing, the CEO or the stock..?? The lack of patience/nerve while values are being built is just frightening. I had hoped that all the old income investors had been blown out, but I don't really care as I haven't finished buying yet. What a bunch of wusses!
The extra money was spent on increased drilling, they drilled $17m to $22m (final number depends on Q4) in excess of cash flow this year in order to conserve Mississippian acreage that was going to expire this year:
"Our seven well vertical drilling program in Oklahoma has successfully added to our Hunton production and also has the added benefit of preserving the Mississippian rights in the seven sections drilled that would have otherwise expired prior to the end of Q3. "
Check slide 17 for details on their capital spending:
In 2012 spending will be in line with cash flow.
Total liabilities at 2010 year end were 215.6m. Asset sale was total of 58m. 2011 year end liabilities 165m. They paid debt down approx. 50m. Used the additional 8m for what? Expenses? CapEx? I guess I am having trouble finding the positive in selling off producing assets to pay down some debt and still have to use some of the asset sale for operational expenses. Looks to me like they may be 1 or 2 qrtrs away from firm footing. Depends on sustained higher oil prices, increased gas prices, monetizing the Hunton/Mississippian play, etc. I can see potential here, but may still be 3 to 6 months away from the catalyst needed to jump the stock price significantly.
You know, we've heard this story over and over again. EQU is simply a very small company producing modest cash flow that is esssentially all going to pay interest on the debt,and the salaries, bonuses, and other perks of management. They took on so much debt and issued so many more units to get out of the Petroflow mess that the company will never see daylight. If you take the 3 for 1 reverse split into account, after all these years of astute management, they've got the company back down to $1.50 a share. Try something like APA if you're serious about an energy investment. JMHO
While I believe the current management team is taking the right steps with paying back debt, solving legal issues and accelerating efforts to develop the Mississippian; it is important to focus on the assets, EQU assets are valued at $8 to $15 a share using the a myriad of valuation methods; and if the management team fails to unlock this value; someone else will. There is one advantage in investing in resource companies like EQU is that regardless what of happens above ground, the underground assets offers shareholders a margin of safety and an insurance of value.
2012 should be an interesting year for EQU, a deal for the Mississippian assets will unlock a lot of value and drive production growth which will in turn reduce debt and further strengthen the company.
Why do they have to do anything? And, if they do, the easiest would be a stock re-purchase.. EQU has the $$ and if the stock is so cheap, that would make it an even better value. And, perhaps that will cause the stock to rebound.. Create value.. That is their job, not the stock price..