RE: Legacy JV Analysis - from CanaccordLegacy Oil + Gas Inc. | Brian Kristjansen, 1.403.691.7807
LEG : TSX : C$14.35 | C$1,818.7M | Buy , Target C$15.25
• "Alberta Bakken" position additional free option value; reiterating BUY and
C$15.25 target
Event
Legacy Oil + Gas has entered into a joint venture agreement with Bowood Energy
Inc. (BWD : TSX-V :
.63 | Not Rated) to farm-in on Bowood’s 183 sections
(117,000 acres) of land in southern Alberta. The lands include all rights and are
prospective for a number of horizons, of which the “Alberta Bakken”, or Exshaw,
is the horizon likely to garner the most attention in the near term.
Legacy has paid $8.0 million to earn a 50% w.i. in 52 sections (33,280 acres, or
$481/acre) and will subsequently earn eight sections on a rolling option for each
horizontal well drilled. The first two horizontals will see Legacy pay 80% of the
cost for its 50% interest, with one well on Bowood’s 94.75-section Blood First
Nation’s lands and the second on remaining acreage.
Daily Letter Summary | 5
8 December 2010
Impact
Positive. Legacy continues to add sizeable exploration acreage and potential lightoil
upside on prospective plays at minimal upfront cost. The initial outlay is
immaterial to the company but could imply unrisked upside of up to $2.25 per
share, based on our initial estimates. Given the scarcity of data on this emerging
play, we have yet to ascribe risked upside, though we believe the potential is
there.
Recommendation and valuation
We are reiterating our BUY recommendation and unchanged C$15.25 target
price. Our target price is based on a 7.5x 2011E EV/DACF multiple supplemented
by risked Bakken (Saskatchewan) upside.