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EV Energy Partners LP Message Board

  • ottoblockhead ottoblockhead Mar 28, 2012 5:26 PM Flag

    Analyst Comments

    Below are the highlights from one of the analyst reports following the earnings call earlier this month.

    Remain bullish. As anticipated, EV Energy Partners (EVEP) did not provide any further insights into a potential 2H12 monetization of its Utica shale position. 4Q11 DCF/unit results were in line with our estimate. We lower our price target to $105 on multiple refinements to valuation, but remain Street-high price target. Moreover, we like the upside asymmetry of $20K/acre Utica monetization at $125/unit (+76%) vs. downside to our base-only $46 valuation (-35%). Reiterate top pick in MLPs.

    Valuation methodology update. Based on our revised base level valuation of $46/unit for EVEP, we estimate $25/unit of value for the Ohio Utica position in EVEP’s current valuation, or $965 MM based on 38.6 MM units outstanding. By our estimates, this additional value would imply a simple hard net value of $6,400 per acre, excluding any additional value for the royalty interest and excluding any deduction from the 25% incentive distribution rights that accrue to Enervest (76.25%) and Encap (23.75%), EVEP’s general partners.

    On the call management confirmed that the net acreage position had been adjusted downward from 159,000 to 150,000 due to land and title work. But management also confirmed the net overriding royalty interest of 7.5%, which is equivalent to a 2% royalty on 880,000 gross acres. Converting the ORRI based on the very conservative valuation of $15,000/acre would result in 17,600 net equivalent acres valued at $264 MM, or $6.83/EVEP unit.

    To convert a working interest acreage position to a royalty interest (no capital requirements), one would conservatively use a 2x to 4x multiple, implying a hard asset value on the ORRI of $12-$24/EVEP unit. Using the net acreage in Ohio of 150K at $15,000 acre ($58) and a conservative valuation at 3x acreage on the ORRI ($21/unit), less the 25% attributable to the general partners, results in a net Utica value of $59/EVEP unit. Combined with the base business valuation ($46/unit), we derive our revised price target of $105/unit. Our rationale for now including the 25% deduction for the GP is that the optimal trade for EVEP is to swap the Utica position for cash flowing assets elsewhere in the U.S. We remain the Street-high price target. At a not unreasonable $20,000/acre upside case our target would rise to $125.

    Good luck!

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