TER: Last time you talked about Equal Energy's strategic review. Where did that end up?
TM: Equal sold all of its Canadian assets, so it's a U.S. company focused on the Hunton play in Oklahoma. On the back end of selling those assets, it declared a dividend and now has a squeaky-clean balance sheet. We estimate a year-end 2012 working capital surplus of about $20M. However, propane pricing at Conway is trading at historic lows, at ~35% of WTI and needs to move much closer to the 50% range in order for Equal's model to be sustainable in the long term. We expect propane prices at Conway to revert back to more typical levels in late 2013 or early 2014, so the dividend model should work in the long term. Due to the excellent balance sheet, we see no dividend risk this year. We have a $4.25 target on the stock.
TER: Is it going to be out on the hunt for new projects?
TM: I expect Equal to make what we call "bolt-on" acquisitions, where it buys a couple of sections of land or a small private company in its key Hunton play. We currently do not see the company making any large acquisitions.
So in the previous post TER = The Energy Report and TM = Tim Murray.
Here is another post from Tim in mid December. IMO the less leveraged a company is the better target for a takeover and that's the bottom line.
Tim Murray, Desjardins Securities (12/17/12) "Much has changed since we last published on Equal Energy Ltd., namely the sale of its entire Canadian asset base for CA$89M and the declaration of a CA$0.20 per year dividend (6.5% yield). . .we believe management has done a very good job of maximizing value from the asset sales and, in turn, reducing debt—the company has gone from one of the most levered small caps to one of the least. . .we are increasing our target to CA$4.25 (from CA$4) and maintaining our Buy–Above‐average Risk rating. . .the balance sheet is in terrific shape."