With production surpassing 10,000 boed, Ithaca moves into the intermediate category, opening up a larger potential shareholder base, and as the market begins to price the stock on its new level of production and cash flow – moving into a higher trading range.
Ithaca has not issued production guidance for some time, and until Athena is fully onstream, there will not likely be an updated estimate. However, we feel confident total production could be 10,000 boed, and guidance earlier in the year indicated it could be as high as 14,000 boed.
If Brent averages $110/b in 2012 (resulting in flat pricing compared to 2011) and gas maintains its current price of $8-9/mcf, our modeling indicates cash flow should be between $1.00 to $1.25 in 2012. At the current stock price, the stock is trading at a multiple of 1.9 times the low end of our estimated cash flow, and 1.5 times the high end. In "normal" markets, the stock would trade at a 5-6 times multiple.
The stock appears to have bounced off its bear market low, and in anticipation of the significant near-term increase in production and cash flow, we believe there could be sustained momentum in the stock price, making for a very attractive investment opportunity.
Ithaca was debt-free at the end of Q2, although we expect the Company to add some debt before year-end.