Mainstream Media and Investing Public Just Awakening to Enormous Value of Unconventional Oil Assets
I had a discussion a couple of weeks ago with a gentleman who was evaluating a company that I consider to be an excellent investment opportunity. The company has spent the last 3 years locking up large acreage positions in unconventional oil plays. This fellow when valuing the company only considered the current booked reserves of the company, despite the fact that this company has only booked reserves on about 15% of its acreage. In other words no value was assigned to almost 500,000 acres that have no booked reserves, but acreage that could be sold today for $5,000 to $10,000 per acre.
That doesn’t make any sense to me, as the success rate by the company in question in drilling out their acreage over the past 3 years has been 99%. These are large resource plays, with virtually no geological risk.
I believe that the investing public today is just starting to awaken to the fact that there is a lot production that is going to be coming from unconventional oil plays in the next 10 years and that the companies that have locked up these resource plays have a large amount of value hidden in currently undeveloped landholdings.
There is no company that gets less respect for its highly valuable undeveloped acres than Chesapeake Energy. Both in unconventional oil and gas plays. In the past 3 years Chesapeake has entered into the following joint venture transactions:
Sold a 20% interest in their Haynesville undeveloped leases for $3.16 billion.
Sold a 25% interest in their Fayetteville undeveloped leases for $1.90 billion.
Sold a 32% interest in their Marcellus undeveloped leases for $3.37 billion
Sold a 25% interest in their Barnett undeveloped leases for $2.25 billion
Sold a 33% interest in their Eagle Ford undeveloped leases for $2.16 billion
Add those up and they received proceeds of $12.84 billion. If you calculate the implied value of the portion that CHK has retained the total is $36.6 billion.
CHK has a $31 billion enterprise value. The value of just the undeveloped acreage is more than this. CHK is the largest natural gas producer in the United States, so the obviously have sizable developed reserves as well. .........
.....Karnes County lies at the heart of the Eagle Ford Shale, a thick layer of dense, oil-and-gas-bearing rock that sits between 5,000 and 11,500 feet beneath the surface. The formation stretches across more than nine counties, but Karnes, population 15,000, has the most rigs drilling for oil: 13 in October, according to RigData, a company that publishes land rig counts.
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Read the rest at:
http://www.gurufocus.com/news.php?id=114043
Energy Sector Outlook Positive for Investors
Trends in the energy sector remain positive. We think current conditions and trends have created one of the best investment environments for us in years:
Last month the International Energy Agency (IEA) raised its 2010 global oil demand forecast upward, to 86.9 million barrels per day from 86.6 million barrels per day. This will be an increase of 2.0 million barrels per day over year earlier levels.
......Analyst Forecasts - The Financial Times had an article last week that noted Goldman Sachs does not think $100 a barrel oil is “as unlikely as it sounds.” Goldman predicts oil will break into triple digits by the end of 2011. The forecast is based on higher than expected global demand, inventory declines, and a reduction in global spare productive capacity.......
http://www.marketoracle.co.uk/Article24272.html