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The following post is so to the point that we’ll publish it integrally, from trepalais:
- It can’t be overstated: a company with an enterprise value of roughly $800 million has produced the single most productive NG well in the history of man. They now how approximately 600 mmcf/d of productive capacity.
- This is roughly equivalent to the daily productivity of Southwestern Energy (SWN), enterprise value of 10.5 billion. It is larger than the daily production of Ultra Petroleum (UPL), enterprise value of roughly $6 billion. The record-breaking well by itself has larger daily production than the entire corporation of Range Resources, enterprise value $7.3 billion. Risk IOC’s productivity and reserves because of its geography, but credit IOC for the extreme low cost of their production, and you get the point.
- IOC has resources equivalent to most mid-cap E&P names most energy investors know about. The major difference is that SWN, UPL, RRC are valued 8-12x where IOC is trading.
- The relevant question for shorts is basically risk-reward. Might you get 10-15% down if the market weakens? Sure, ok. But if you think in terms of weeks and months (not years), aren’t you really shorting an increasingly proven, large gas resource owned by a company with stated plans to monetize a portion of the asset?
- We know that the company will sell down to maybe 75% ownership. If they were to sell 25% for a billion dollars, (let’s say a major credits Elk/Antelope with 4 Tcfe, valued at $1.00/mcfe), that would be roughly $25 in cash, with an implied value for the remaining portion of the business of $75. This is a certainly plausible scenario.
- The 10-15% swing trade down looks pretty silly measured against the the potential. Seriously, IOC could potentially sell only 25% of the discovery and net $25 in cash.
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