Congratulations to the shareholders of Celtic Exploration CLT.TO 27.06 [0.00]. Exxon Mobil is paying $24.50 for each Celtic share which represents a 35% premium to yesterday?s closing price. CLT?s management won?t be retiring?any-time?soon as shareholders will be getting 0.5 shares for each share held in a new spinco led by current management.
The news lit a bunch of natural gas weighted producers on fire today! They all had one element in common ? no it?s not the natural gas production ? it was the Montney land base. Exxon paid about $3,000 per acre for CLT undeveloped land, it was clearly looking to establish a foothold in the Motnney liquids rich resource play.
?This acquisition will add significant liquids-rich resources to our existing North American unconventional portfolio,? Andrew Barry, president of Exxon Mobil Canada, said in a separate statement.
The most important aspect of this deal lies in Celtics quality asset base of?~875 net sections in the Montney and ~165 net?sections in the Duvernay.
In the junior sector, the following stocks exploded upwards:
- Artek Exploration +23%
- Yoho Resources +19%
- DonnyCreek Energy +11%
- Delphi Energy +11%
The intermediate sector saw the same reaction:
- Nuvista Energy +13%
- Cequence Energy +12%
- Perpetual Energy +8%
- Birchcliff Energy +8%
What?s all the excitement about? Well, if you apply the transaction metrics on these stocks you will see why investors are drooling. The upside potential in share price appreciation is HUGE.
The deal is valued at $3.1 billion according to the news release:
Including the amount to be paid for Celtic?s outstanding convertible debentures and including?Celtic?s bank debt and working capital obligations, the transaction is valued at approximately?C$3.1 billion (excluding the estimated value of Spinco shares).?
Celtic was guiding for an exit production rate of 29,900 boepd (76% gas). The company held 138 million boes of 2P reserves as of the latest reserves report. That means the transaction metrics per barrel of 2P reserves and flowing barrel of oil equivalent are roughly?(no adjustment for land, spinco production and spinco reserves) the following:
- $22.30 per boe of 2P
- $104,000/boed
What happens when you apply these metrics on some of the stocks above? Let?s see what this hypothetical scenario results in:
|
Company |
Last Price |
EV/BOED Target |
2P Target |
| Delphi Energy |
DEE.TO 1.44 [+0.01] |
$5.96 |
$6.83 |
| Cequence Energy |
CQE.TO 1.89 [-0.03] |
$4.51 |
$7.84 |
| Perpetual Energy |
PMT.TO 1.23 [-0.03] |
$14.47 |
$12.26 |
| Yoho Resources |
YO.V 2.89 [+0.06] |
$6.02 |
$6.13 |
Like I said, the upside is huge. But before you rush your orders in, remember that there?s no guarantee these stocks will be taken out in the near future using similar metrics. ?After all, the premium was ?only? 35% relative to the multiples you see above. There?s also an important fact that should not be ignored here, in 2012, our 4 stocks reported profit netbacks ranging between $4 and $12 per barrel thats dismal in case youre wondering and explains why theyre trading so cheap.
GoodBye Celtic, Hello Spinco!
The highly profitable oil weighted stocks get ignored while their natural gas weighted peers get a little bit of attention. There?s a trade in natural gas going into the winter and so far its been rewarding. Todays takeover certainly boosted the whole sector and shed the light yet again on the strategic Montney liquids rich resource play (remember the upcoming LNG export facilities on the coast of BC), I would not rule out a competing bid!
How are you playing the natural gas trade?
