The impression I have is they are going for a JV or a farm out; I doubt that they will sell the acreage; my guess they want to increase production; and having a JV partner to finance drilling or a farm our agreement will lead to a significant increase in production, without the need for the company to inject any capital.
Based on my research their acreage could support 100+ locations; SD is reporting 96% IRR in the play, 456K EUR and $5.6m NPV per location; at 100 locations we are looking at potential $560m value that can be created; if they get a partner to shoulder the drilling costs for at least the initial stages of the development, enormous shareholder value will be created.
If the land is worth $60m to $80m, a partner would need to invest that same amount to match EQU contribution; with such an amount 20 to 26 locations could be drilled (based on SD costs of 3m per location); this means a quarter of the potential locations could be developed before the need for EQU to invest any funds in the play; 20 to 26 locations will create $112m to $146m in NPV, at 50% EQU share that would be $56m to $73m net to EQU; and this would still leave 80% to 75% of the play to develop.
At $140m marketcap, the Mississippian deal will be truly game changing for the company.
Thanks Nawar for your insight. If the stock does not go up as you hope, would you be interested in forming a group to pressure mgmt. to sell the assets? I have owned Enterra since 2006, what a disaster!
Yes Gary; if management fails to monetize the Mississippian properly; I would be interested in pressuring the management; as a matter of fact, I would be interested in significantly increasing my ownership (possibly to 2%-3%) from just over 0.5% currently in order to have a large enough block along with other interested shareholders to press for a strategic option.