GMP.......ouch! you should have listened to me Anderson Energy Ltd. (AXL-T); REDUCE,
.40
AXL announces Cardium focused operations update and review of strategic alternatives
Cardium focused operations update
AXL announced this morning that it expects 2011 production to average 7,700 boe/d and Q4/11 production of 7,930 boe/d (36% liquids). The Q4 production was ~3% below prior guidance and the liquids weighting was lower than we had been expecting. AXL noted that liquids production was impacted by a dry hole at Carrot Creek (Cardium), production delays associated with bringing the new Cardium areas on-stream, and regulatory delays relating to new well tie-ins.
In our view the strategic review process is being driven by the company’s high debt levels
In this morning’s press release AXL announced that it has hired financial advisors to review strategic alternatives for the company. AXL noted that it would consider a sale of all or a material portion of the assets of Anderson, either in one transaction or in a series of transactions, the outright sale of the Company, or a merger or other strategic transaction involving Anderson and a third party. AXL noted that this decision was not driven out of any offer received but rather that the Board of Director’s believes that the company is undervalued. No direction on timing of the process was given. In our view the strategic review process is being driven by the company’s high debt levels and lack of financial flexibility.
Takeout valuation
With the announcement this morning regarding the strategic review process we have re-worked our valuation methodology to reflect recent transaction values for similar assets. Based on the value of AXL’s asset base and its reserves we see a value of between
.39 to
.42/share.
Maintaining REDUCE recommendation and
.40 target price
We believe that AXL has initiated a review of strategic alternatives due to its high debt levels and strained financial position. In our opinion, the company will not be able to grow or maintain production levels by only spending cash flow and we expect production to decrease during the strategic review process.