Watch List: Petrohawk (HK)

[dan_s]

Petrohawk today announced the
sale of its Fayetteville Shale holdings for $650 million to XTO Energy, a subsidiary
of Exxon Mobil. Of this, $575 million was allocated to E&P assets (157k net acres
and 98 MMcfe/d of production) and the remaining $75 million to associated
midstream assets. The company’s prior indication was for proceeds of $500 million
to $1.0 billion, but today’s figure was in line with our expectations. Associated yearend
2009 proven reserves were 299 Bcfe, or 11% of HK’s total proven reserve
base, implying valuation of $1.92/Mcfe based on proven reserves only, and $5,867
per flowing Mcfe based on production, which is below other recent industry
transactions but consistent with the relatively mature, gassy, and non-operated
nature of these assets. The transaction has an effective date of October 1, 2010,
and is expected to close in early 2011.

My take: I like this deal but I'm not very high on HK. They have some great Eagle Ford Shale acreage but they have a lot that isn't that great. For exposure to the Eagle Ford I like EOG, CRZO and ROSE better. - Dan

[ghrcap]

Petroquest (PQ) is a non-op partner with HK in the Fayetteville, now with ExxonMobil's XTO division. PQ owns 18,000 net acres in the FV, its share of production is 5,000-6,000 Mcf/day, more than paying for itself, and they have 10B's of P1 reserves booked there. I like HK's sale multiples for their comp value to PQ. PQ is not properly getting the valuation of a resource player; it is still thought of as a gassy GOM player. Instead, it is more than half liquids and getting more so. Pay attention to slide #21 and #27 in their December presentation (linked below) as well as the fact they are bank debt free.

Following comment on HK is from Global Hunter Securities:
"Petrohawk Exits Arkansas Raising $650 Million
•
Petrohawk Energy (HK; $18.61; Not Rated) announced the sale of its Fayetteville shale assets to ExxonMobil’s (XOM; $72.80; Not Rated) XTO Energy unit for $575 million, effective October 1, 2010.
•
Current production from the properties is approximately 98 MMcfed (approximately 14% of 3Q10 production) and year-end 2009 proved reserves were 299 Bcfe.
•
The transaction represents an acquisition multiple of $1.92/mcfe of proved reserves and $5,867/flowing mcfepd of production.
•
Petrohawk is also selling its Fayetteville midstream assets to ExxonMobil for $75 million.
• The company’s long-term debt at 3Q10 was $2.6 Billion."

http://www.petroquest.com/PDFs/Dec_000.pdf
http://www.wsw.com/webcast/cof2/registe ... t/cof2/pq/

[dan_s]

Obviously, Exxon sees the long-term value of natural gas.
http://www.rigzone.com/news/article.asp ... _id=102502

PetroQuest (PQ) is on our Watch List. During the first quarter we are going to work up company profiles and forecast models for all the companies on our Watch List. We just posted a revised profile for Rosetta Resources (ROSE).