The acquisition of Progress Energy (TSX-PRQ) by Petronas (Malaysian NOC) is worth highlighting for its rich valuations. PRQ’s shareholders got paid $20.45 per share, a 77% premium to the last price of $11.55, talk about winning the lottery.
Progress was guiding for 50,000 boepd (85% weighted to natural gas) exiting 2012. With AECO NG pricing averaging $2.02/mcf YTD, either the market is stupid for not seeing the value in natural gas producers or Petronas overpaid royally. Let’s take a look at the transaction metrics based on the $5.5B acquisition:
- $117,000 /boed
- $87,600 /boed if undeveloped land is assigned $1,000/acre
- 1 122 000 net acres in undeveloped land according to their 2011 annual report
At $87,600 /boed using 15,000 boepd, CQE (Proforma of ONR’s acquisition) would be valued at $4.62 per share (O/S 284M FD). That equals 4.5 times the current share price assuming land is worth $0.
Petronas overpaid if one looks at the current market for NG but not if you’re looking 20 years out. This is a National Oil Company that wants to secure LNG supplies for decades to come. They don’t care about Europe’s drama or the North American NG market right now. Export facilities are coming in a few years so for them this is the right time to position themselves close to Kitimat.
Proximity to BC’s coast is KEY!
While CQE’s valuation using PRQ’s metrics is just pie in the sky, the transaction does highlight the fact that this summer might be ideal to position one’s self in quality NG producers if you believe in its future. Obviously, if you decide to do so, look into medium-cap/large cap producers similar to Progress. Remember that PRQ’s expansive land position in Alberta’s Deep Basin and NE British Colombia is what made it quite an attractive target.
Do you think Petronas overpaid? Are you ready to jump back into NG?
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