PI Financials last update 09/05
Impact of Non-Core Hamburg Disposition Immaterial
EVENT: Pursuant to the previously announced disposition initiative in
the name of deleveraging its balance sheet, Arcan has sold its Hamburg
assets (~237 boe/d, 89% oil) for $12.1MM.
IMPACT: Negative, albeit non material
DISCUSSION
Our comments on this sale, echo those made in response
to Arcan’s August 8th disposition (Judy Creek for $7MM) - namely that
weak realizations, while not surprising in this environment, are
nonetheless a disappointment. Netted against an $8MM loss incurred on
disposal of acid inventory the $19MM in dispositions make only a
modest dent in the ~$323MM of debt ( Debt and Debentures). In fact
this latest sale would even appear to be slightly dilutive seeing as they
sold assets for ~$51,000 per flowing boe when trading at closer to
~$94,000 per flowing boe.
FORECAST: No change for volumes and cash flow. This sale was
anticipated in guidance and in our volume estimates – these being at the
lower end of guidance.
VALUATION/RECOMMENDATION:
While we take this as a slight negative, it is far too small an item to impact our overall opinion on Arcan. We continue to see Arcan trading at a deep discount to our $5.00 NAV - plus-risked-upside. We continue to view the Company as a takeout candidate but caution that such a take out, in the current environment, would not likely see investors realize on the full potential. Our 12-month target of $3.00 is based on a 40% discount to our $5.00 NAV plus-risked upside valuation. We maintain our BUY recommendation (SPECULATIVE risk rating).