Fair value of Mhr is $12.25 based on recent transaction of Utica acreage with average price per acre of$12,486
I agree with Real Money article about Mhr except I think pipeline might worth little bite more (1.5-2 billion) in early 2015.
"Magnum Hunter's reserve valuation (as of Dec. 31, 2013, so very recent) is $922 million, and the next step is to value its undeveloped acreage. I used $12,500 per acre for its Utica assets and much lower valuations for their Bakken and Marcellus assets. Giving Magnum Hunter credit for a $1 billion valuation on its Eureka Hunter pipeline asset (Magnum Hunter owns 58%, and I am more convinced than ever that is a billion-dollar asset) and stripping out Magnum's $1.07 billion of debt and preferred stock leaves a fair value per share of $12.25.
That is a huge premium to Magnum Hunter's current share price of $8.24. That analysis is possibly conservative (the company is getting very little reserve credit for its Utica assets because its production there is so new), and this is the reason I am buying MHR shares today for my clients."
I think you have a fair and conservative estimate here. There is little to no value given to some of the none core assets. Nor is there any value given to the NSE deal, rightly so as they do not represent a large asset "yet" but they may very well in a short period of time.
Another thing to consider is the value of leases where the Marcellus and Utica overlap. These leases are more valuable than leases with either one or the other in play.
Depending on how the Utica leases turn out and the non core asset sales go along with the debt reduction that should follow I think MHR is looking for a buyout in the $14-$16 range. I guess we will just have to seen what GE has up his sleeve.
HT: Reacting to your note, I don't think you get a premium for leases in overlapping acreage areas because GE already double counts that acreage as both Marcellus and Utica acreage. Thus, the "overlapping premium" is already recognized in valuing the acreage. At least the way I understand the presentations..... Lex