Keith Schaefer on LVL Thanks to Keith Schaefer, 2012 was a very good year for me in the market.
DTX, DCK.V, and now in LVL.
Here's Keith's latest write-up on LVL.
Lynden Energy had some potentially market moving news after market today.
Chairman Richard Andrews kept telling me it would happen—that the value of their land and production in the Permian Basin would get recognized.
Today after market close, he was proven right.
Lynden announced they have sold 10% of their Wolfberry acreage (1440 gross, 630 net acres or just under one square mile)—for $25 million today, to Breitburn Energy Partners LP (BBEP-NASD). That works out to $39,682 per acre.
In terms of wells and production, they are selling their interest in 16 gross, 7 net wells, or 20% of their production.
In the quarterly announced two weeks ago, they were producing 980 boepd, (they didn’t say how much production was sold in the release) so that would be 195 boepd, or $128,205 per flowing barrel.
If I go by their last public cash position, this $25 million will give the company a net $2 million cash position, as they had $23 million drawn on their $26.9 million LOC. (But they’re probably in net debt again as they are drilling a lot of wells).
Their 2013 Wolfberry capex=$43.5 million (that’s 20.73 net wells cost (18.14 net wells production as they pay a permanent small promote) at $2.1 million per well).
Revenue is over $6 million per quarter or $24 million/yr. That plus the line should mean Lynden should not have to raise equity this year.
That naturally begs the question—what’s the rest of the company worth?
Well, they said they would still meet their exit production guidance of 900-1000 boepd. 900 x $128,205=$115 million ($1.02/share) for the producing acreage.
In late November they announced they had 53 gross wells, and these wells have 40 acre spacing. They now have 37 gross wells, after selling these 16 gross wells to Breitburn.
The math can get very complicated considering their acreage is “net-net”—net of their 43.75% working interest in their partner’s interest and some outside small interests.
On 40 acre spacing that says 1480 gross acres, or 647 net to Lynden are producing—so (6100-647=) 5,453 are not. Lynden’s net-net acreage is more like 5000 acres. Whatever the exact number, there’s lots of upside there—just over 10% of their acreage is producing.
What do you value all that land—that is in the production fairway? $20,000 per acre would give it a value of $100 million or 91 cents a share.
Those makes $1.93 a share—just for Wolfberry right now—add another $1/share when it’s all producing. The THEORY has been to put the value in this range for a long time, but now is the first time it’s validated in the market.
Mitchell Ranch is a wildcard, but given the success of Devon (DVN-NYSE) nearby, $3,000/acre would be conservative, IMHO. They have 33,700 net acres, which equals a value of $101.1 million, or roughly 93 cents a share.
So with net zero cash essentially, let’s say the company has now been validated at between $2-$3 a share. And it closed today at 95 cents.
In one of my latest bulletins I explained how this and several other stocks were difficult for me, because I’m not a patient investor (that usually costs me money). I’m more a momentum investor; I can smell when a deal is about to gain critical mass in market psychology and start a run.
I thought that was happening to Lynden 18 months ago when I bought the stock—I called it a no-brainer (that cost me a few subscribers…). I was right but 18 months too early.
The issue for investors has been that nobody else follows this stock. No analyst coverage. Our subscriber community is the retail float on the stock—not a position I like. And data points are hard to come by—a lot of majors are in the area and don’t put out press releases on individual wells.
That used to be a problem. Now that value has been validated, it’s an advantage.
Now, if the market can get some public domain information on well results around Mitchell Ranch, which could be another huge catalyst for the stock. Also, Chesapeake (CHK-NYSE) has never released results of their horizontal wells (plural) into Mitchell Ranch. That large, continuous piece of land is potentially a BIG wild card for the stock.