Marquee Energy?s strategic Cardium disposition is an important step at regaining balance sheet flexibility. This certainly won?t be the last asset to be sold as theres at least 2 more currently being marketed: Ante Creek in Northern Alberta and Weyburn in Saskatchewan. These dispositions will fuel momentum for strong production growth from the company?s Michichi play as funds are recycled through the drill bit.
When I last featured Marquee, the stock simply reflected Michichi?s value at the time at $1/share. Today, the stock is trading well below that value. I don?t have to run any numbers since the company included them in the latest presentation.
50% upside to hit the NAV of 1 asset!
And the market is still valuing the following properties at a big fat zero:
Assets bundled in the share price for free!
Yet, these properties are worth a few dollars according to the latest transaction. The Willesden Green property?wasnt?given away to a charity. It was bought by Bellatrix Exploration for the fair price of $21 million. The transaction metrics fall in line with the average for this year given the great market?weve?been going through:
- EV/BOED of $42,330 compared to the 2012 average of $44,083 per flowing boe. (According to ATB Corporate Financial Services, Key Statistics Summary, August, 2012)
It makes sense for Bellatrix to buy this asset since it fits perfectly with their core area at Willesden Green.? For Marquee, it makes even more sense to unlock ~$0.40 per share which the market was valuing for $0. Marquee might have lost 500 boed in this transaction but they can be replaced by 1,000 boed for $20 million. The new volumes would be 65% weighted to liquids rather than 32% which improves netbacks substantially.
This is exactly what the company is doing as it kicks-off a new 7 HZ well drilling program at Michichi in December. A?small expansion and gas plant upgrade of the companys recently acquired facilities is?under-way?to be completed in December, 2012. The tie-in delays have been largely eliminated.
Production guidance for 2013 has not been provided yet so Ill be running my own numbers. ?My scenario calls for ?3,000 boepd (60% liquids) in average production using the following price deck.
- Edmonton Par at $80/bbl for light oil
- WCS at $60/bbl for heavy oil
- AECO at $3.30/mcf for natural gas
This results in an estimated cash flow of ~$25 million or $0.48 per share. This means Marquee MQL.V 0.47 [+0.02] is currently trading at less than 2.0x CFPS.?In this scenario we have not accounted for further dispositions. Weyburn and Ante Creek could bring in between $5 to $10 million in proceeds. This?would strengthen the balance sheet further at almost no loss of production.
A combination of debt reduction and liquids-weighted production growth is exactly the momentum I am expecting in the near term.
Michichi has become Marquees workhorse with a?multi-year?drilling?inventory of?more than 100 locations. The Detrittal/Banff play might not have the sex appeal of the Alberta Bakken or?the?Duvernay but it should not be underestimated. The asset carries an estimated ?5 to 6 million barrels of OIL per section of original oil in place. At 110 net sections, thats 550 million barrels of oil of which at least?10% would be recoverable.
The next catalysts for Marquee are new well results from Michichi and further non-core assets dispositions. Its obvious that the stock is worth more than the $0.91 its currently trading at. In fact, I expect the stock to easily rise above the $1.50 level early in 2013. The CEO has so far done a great job rebuilding the company from the ground up. However, nothing is going to happen until the fiscal cliff is solved. Weve seen that movie before last year with the debt ceiling, we already know the ending. But the boys in Congress will be boys regardless of the turbulence they put the economy through with their bickering
Whats your take on Marquee?
