Post by
manny5 on Mar 14, 2010 4:54pm
ADB is a great deep value investment
We think ADB is worth .15 to .25 given the present value of its reserve base (~50Bcf of proven reserves) and its massive acreage position: 120k acres in Kansas and 16k acres in Appalachia.
At. 04, this is one of the only deep value stocks left which hasn't rallied with the market, and it's only a matter of time before it catches up.
Conservatively, 50Bcf of proved reserves is worth $40-50mn (look at their reserve report which lists the PV-20% at $60mn). Add on at least $10mn (most likely $15mn) for the Marcellus Appalachian acreage and a modest $200 per acre for 80,000 undeveloped acres in Kansas (where no proved reserves have been booked) and you get a stock that's worth at least .15 and potentially .30+...
We have seen Marcellus acreage (do some googling) go for up to 14,000 per acre (with a floor of 3,000 per acre) over the past 2 years - we think this supports a lot of the value in this stock and will be sold soon to fund develoment of the Kansas properties...
We think the upside potential to quadruple your money far outweighs any risk of dilution in the near-term.
To answer the previous posters' questions:
1 & 3) The 5.75mn farmout - CFO said the partners had trouble funding the 2009 farmout and have since decided to roll that into 2010, hence no income generated in the Oct 2009 financials...
2) The 500k option for Fort Scott was for non-CBM rights on their Ft. Scott property - there is an oil field below the coal which another company wanted the rights to - this highlights the potential upside on their 120k acres in Kansas (80k undeveloped) to the extent that their are other valuable zones within the acreage.
3) Looking at Kansas geological survey is somewhat misleading because often they drill wells through other subsidiaries. Also, they have all the permits they need for their current inventory of wells so no need to file new ones in the near future... Also, a lot of the value in this company is to pick the low-hanging fruit by going back into old wells and changing out the pumps, re-fraccing, and finishing uphole sections - they have an awesome gathering system/infrastructure in place which will drive a substantial portion of the value of this company.
Thx for the thoughtful questions and good luck to all as this stock creeps back towards its an intrinsic value of somewhere between .15 and .30... We think a near-term catalyst could be a takeover by another competitor in the basin such as Postrock (PSTR) or Constellation (CEP)... Please come back with any questions or comments as we always appreciate dialogue arround ideas...