RE:RE:RE:Bouquets, CKE Montney wells have Condensate at 30 bbls/MMcfThanks for responding again, Stockfy, and for pointing out that article, which I have to say I didn't find all that helpful. I've been slowing working my way through the valuations of Storm and Chinook for a couple weeks now and I'm finding it a little more complicated than I thought it would be.
On the differences in drilling costs (slightly lower for Chinook) and likely production (slightly higher for Storm), I think the advantage is almost a tie: note that Chinook estimates its prospective wells' payout at 1.92 years (Chinook April Presentation, slide 13). Storm's half-cycle payout is estimated at 2.1 years (Storm April Presentation, slide 18); full-cycle at 3.2 years. (I assume that Chinook's figures are half-cycle.)
Chinook is, as you say, debt-free, which I regard as neutral or only slightly positive in and of itself. One should, of course, take account of debt by using enterprise value instead of marketcap in ratios, but that's about it.
Acres are, in my opinion, of almost no value in evaluating these companies. Some acres of each company are worth a fortune—the ones that have producing wells or soon will have them. Other acres are going to have less value depending on the likelihood they will be drilled and how far away that drilling is. Still other acres are worth nothing at all. All companies have a mix of all three, but in what proportions is anyone's guess.
Reserves do have real value for comparing companies, but I worry that the independent evaluators hired to do them are not really independent, and so regard 2P as only slightly less useless than acres. And in any case, there's a lot of different ways to measure reserves. I'm inclined towards using 1P PDP, since these are tied pretty closely to real wells and what they will produce. Anyway, one thing that I noticed is that the NPV figures seem much closer for Chinook and Storm than the boe figures.
A final element that I'm trying to get my head around is decommissioning liabilities, which seem much larger for Chinook, which have legacy assets that will need to be retired in the not too distant future. I haven't quite figured out how much weight, if any, to assign to this. Have any thoughts on that?
stockfy wrote: it was great talking to you, bouquets! As you see, the slight difference, if any, between SRX's and CKE's results is more than offset by CKE's lower cost per Montney well and the fact that SRX has a significant amount of debt (SRX leverage is about 1.6 times) while CKE is debt-free and will exit 2017 debt-free.
Nevertheless, SRX trades 4 times higher per flowing barrel, 2 times higher per boe of 2P reserves, 3 times higher per CF (13x CF versus 4x CF) and 4 times higher per Montney acre ($5,300 per Montney acre versus $1,100 per Montney acre). This tremendous valuation gap is insane. Read Value Digger's article below:
https://seekingalpha.com/article/4051519-chinook-energy-free-last-montney-growth-engine-begins-bargain-valuation
Please also note that CKE will definitely fund the expansion of its compressor from 25 to 50 mmcf/d to accomodate the increased volumes from the existing wells and host the new volumes from the 4 Montney wells that will be completed in Q2. There is no question about this expansion, the expansion has been announced twice in two separate press releases:
2017 Capital Budget
Chinook’s Board of Directors approved a $40 million capital program for 2017 focusing on the development of liquids-rich natural gas at Birley/Umbach, British Columbia. This capital budget will also fund the expansion of Chinook’s 25 mmcf/d compressor station at Birley/Umbach to 50 mmcf/d. Chinook’s pace of Montney development will continue to be prudently managed to demonstrate growth from its Montney assets while maintaining a strong balance sheet.
Outlook
On January 23, 2017, we announced a $40 million capital program for 2017 which included the expansion of our facility at Birley/Umbach to 50 mmcf/d and the drilling of six (4.5 net) wells which were anticipated to be 1,600 meters in length with frac spacing of 60 to 65 meters. We are optimizing our drilling and completion program which has been revised to now include the drilling of four (3.67 net) wells, two (2.0 net) of which will have lateral sections of 1,600 meters in length and two (1.67 net) will have 1,800 meter length laterals. All four wells will have tighter frac spacing of approximately 52 meters from the original 60 to 65 meters. The additional length of two of the wells is anticipated to add to the recoverability of hydrocarbons while increased frac density is anticipated to result in increased initial well rates.