What kind of deal can MGM do on it's shale oil play. You should listen to this Wall Street Article:
Shale-Boom Profits Bypass Big Oil
Shell, Exxon Came Late to the Party, Then Made Massive Investments
https://online.wsj.com/article/SB10001424127887323997004578642391718255534.html
In particular listen to the 3 minute video "Heard on the Street".
For a confirmation that Big Oil is trying to buy its way into the shale oil party check out the recent deal made by Chevron in the Duvernay. I think this is the third deal in the Duvernay. Encana/Petrochina and Exxon/Celtic being the other two.
Chevron = $1 billion/ 67,900 acres= $14,727 per acre
Encana = $2.2 billion/49.9% x 445,000 acres = $9,907 per acres
Celtic =$3.1 billion/545,000 acre = $5,688 per aces
NEW YORK (
The Deal) -
Chevron Canada, an indirect unit of oil and gas giant
Chevron (
CVX_) said late Thursday, Aug. 1, it agreed to acquire all interests in the Duvernay shale formation in west-central Alberta from
Alta Energy Luxembourg Sarl and affiliates. While
financial details weren't disclosed, sources said that the deal that came in at just south of $1 billion. The acquired interests cover 67,900 net acres in the Duvernay, which is a hot play in oil and gas circles, both for its natural gas--which could potentially supply future liquefied natural gas projects exporting to Asia --and its natural gas liquids, which fetch a higher market price. Other oil giants have already poured into the region.
Encana (
ECA_) sold 49.9% of its 445,000 acres in the Duvernay play to a unit of
PetroChina (
PTR_) this past December as part of a joint venture deal for C$2.18 billion ($2.2 billion), which, at $9,800 per acre, turned some heads. And in October
ExxonMobil (
XOM_) bought
Celtic Exploration --which owned 100,000 acres in the Duvernay shale as well as 545,000 acres in the Montney shale--for $3.1 billion.
ConocoPhillips (
COP_) bought properties in the Duvernay in the fall of 2011 and
Royal Dutch Shell paid $5.2 billion for Duvernay Oil Corp. in 2008.
The question is: are these deal representative of deals that MGM could do?
1. Does MGM has properties in the wet gas/condensate window? Yes
2. Can we translate Duvernay values into Canol values. I don't know. Canol is oil and Duvernay is wet gas. Oil is worth 10 x more, but Duvernay has roads and pipelines. Canol is not well defined while Duvernay has lots of well control. Duvernay has horizontal tests while Canol does not. However, Canol has 5 to 8 times the amount of oil per acre that Duvernay does.
The dollar per acre number is a very rough metric of value, because acreage values vary tremendously depending upon how much oil lies under each acre. However, in most cases we do not have the amount of oil per acre so we are stuck with dollars per acre. However, the Encana deal disclosed the resources per acre which by coincident are almost the same as the amount of oil under the MGM lands. The difference with the Canol is that the lands contain many times (up to 8x) the amount of oil per acre and the Canol is oil and Duvernay is oil.
A better metric is the amount paid per resources in the ground: Petrochina paid Encana $0.50/boe for resources in the ground. MGM has 8.3 billion BOE so that works out to $4.2 billion spread over 400 million shares or $10/share. Is that smoking dope? It depends on whether the MGM estimates are any good. The area is so lightly explored that I would say there is a large amount of uncertainty associated with the estimates. I know the engineering firm that did the estimates (Spoule Engineering) and they are good and very credible. However, there is not much data. The most recent well drilling and cores will greatly increase the accuracy of the estimates and I would anticipate that Spoule will revise MGM’s resource estimates. However, we can’t expect anything until the end of the year. However, you can be that MGM will use these to shop a deal.
Another big factor is how much of that oil in the Canol can be brought to the surface. If we are in the 4% range, MGM is in the money. Only long term testing of horizontal wells will tell the story. As a result, shopping a deal after horizontal testing is done would be be even more advantageous to MGM.
Opinions anyone?