Only saw the headline on-line, but I understand that there is a very bullish article in this weekend's Barrons.
If someone subscribes to the on-line version of Barrons, please post the article.
MrMuileh
AREX - Barrons
Re: AREX - Barrons
Approach Resources (AREX) has a lot of acreage in the Delaware Basin that is just north of where EOG has drilled some very good Wolfcamp horizontal wells. I just wish Approach would get more rigs and pick up the pace.
A Shale Play With 50% Upside
Barron's thinks Approach Resources deserves more credit for its cheap acreage and promising prospects in the Permian Basin, one of hottest spots for drilling oil and gas in the U.S. Why a sale is likely.
I do think AREX is a prime takeover target.
A Shale Play With 50% Upside
Barron's thinks Approach Resources deserves more credit for its cheap acreage and promising prospects in the Permian Basin, one of hottest spots for drilling oil and gas in the U.S. Why a sale is likely.
I do think AREX is a prime takeover target.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: AREX - Barrons
Here is the article from Barron's.
MrMuieh
The Permian basin in West Texas has become one of hottest spots for drilling oil and gas in the U.S. Large companies, including Apache (ticker: APA), EP Energy, and ConocoPhillips (COP) have crowded into the area, drawn by its oily shale deposits and advances in horizontal drilling technology.
A small oil and gas outfit, Approach Resources (AREX), also has operated in the Basin since 2004, and its acreage and promising drilling prospects ought to command a closer look. By some estimates, the shares, now $24.65, could be worth at least 50% more.
Approach owns 152,000 contiguous leasehold acres, mostly in the Wolfcamp shale, an emerging play. Wolfcamp's attraction stems from its ability to support multiple wells per drilling location, due to the thickness of its shale.
Enlarge Image
Gaylon Wampler/Corbis
Wall Street is giving Approach Resources little credit for its valuable Wolfcamp shale acreage in Texas' Permian Basis.
Prices for Wolfcamp acreage have skyrocketed, especially since January, when China's Sinochem paid $17,000 an acre in a deal to buy 40% of Pioneer Natural Resources' (PXD) interest in the area. Approach's land cost averages about $500 an acre.
Yet, "Approach gets no credit," says Eugene Robin, an analyst at Cove Street Capital, which owns the shares in its funds. The stock has fallen 16% in the past year, and short sellers, skeptical of Wolfcamp's drilling potential and Approach's production guidance, now account for 20% of the public float.
Based on $85 oil and a conservative assumption that the company will drill 1,100 horizontal locations, Robin estimates Approach's net asset value at $42 a share. Approach estimates it can drill 2,100 sites.
Approach was founded in 2002 by a group of oil-industry veterans, including CEO Ross Craft, and came public five years later. Its acreage, in Crockett and Schleicher counties in Texas, has estimated proved reserves of 96 million barrels of oil equivalent. More than half of its acreage remains undeveloped.
Approach has shifted its focus since 2010 from gas to liquids. Oil accounts for 42% of production; natural-gas liquids contribute 28%, and natural gas, 30%.
Analysts expect Approach to earn $14 million, or 39 cents a share, this year, on revenue of $183 million. Earnings could nearly double in 2014 to 73 cents a share, on a 50% rise in revenue, reflecting increased oil production.
In the past 18 months, Approach completed 35 horizontal wells, mostly drilled in the central portion, or "B bench" of Wolfcamp. They have yielded good results, with wells producing more than 500 barrels of oil equivalent a day.
The company also has begun drilling into the shallow level, or A bench. So far the A-bench wells are performing mostly in line with expectations, but with just a few wells, it is probably too soon to tell.
Recent Price $24.65
Market Value (mil) $990
Estimated 2013 Revenue (mil) $183
Estimated 2013 EPS $0.39
Proved Resources 95.5 Mmboe
Net Asset Value/Share* $42.00
*Cove Street Capital estimate assumes $85 oil
Sources: Cove Street Capital; Bloomberg; Thomson Reuters
The deepest layer, the C bench, is largely untested. Over the next 12 months, the company could put in between 60 and 72 horizontal wells. Good results could put to rest doubts about the potential drilling locations that exist.
Approach says all three layers have an equal number of drilling locations, or the aforementioned 2,100 in all. The company is targeting 450,000 barrels of oil equivalent from each well, and hefty 30% returns. It expects to drill 29 horizontal wells in this year's second half, and is targeting 25% annual production growth. Management couldn't be reached for comment.
APPROACH HAS A SOLID balance sheet, with $55 million in cash to $250 million in debt. Net debt totals 1.5 times this year's expected earnings before interest, taxes, depreciation and amortization. With a $260 million drilling program, the company could outspend its cash flow by $160 million this year. But it has plenty of flexibility, with $370 million in available liquidity.
Last Thursday's sale of its oil pipeline for $108 million also gives it leeway to finish testing Wolfcamp on its own.
Approach is unlikely to remain independent long-term. With a cost exceeding $15 billion to develop its reserves, a larger player would need to become involved.
Robin thinks a sale of the company is likely, citing the CEO's comments that he doesn't plan to form a joint venture. In the next 12 months, he says, Approach could complete enough testing at Wolfcamp to give it a good idea of its value in a sale. Robin thinks a price in the high $30s is reasonable.
Craft, the CEO, owns 2.4% of the company. That gives him a good incentive to strike a deal beneficial to all shareholders.
MrMuieh
The Permian basin in West Texas has become one of hottest spots for drilling oil and gas in the U.S. Large companies, including Apache (ticker: APA), EP Energy, and ConocoPhillips (COP) have crowded into the area, drawn by its oily shale deposits and advances in horizontal drilling technology.
A small oil and gas outfit, Approach Resources (AREX), also has operated in the Basin since 2004, and its acreage and promising drilling prospects ought to command a closer look. By some estimates, the shares, now $24.65, could be worth at least 50% more.
Approach owns 152,000 contiguous leasehold acres, mostly in the Wolfcamp shale, an emerging play. Wolfcamp's attraction stems from its ability to support multiple wells per drilling location, due to the thickness of its shale.
Enlarge Image
Gaylon Wampler/Corbis
Wall Street is giving Approach Resources little credit for its valuable Wolfcamp shale acreage in Texas' Permian Basis.
Prices for Wolfcamp acreage have skyrocketed, especially since January, when China's Sinochem paid $17,000 an acre in a deal to buy 40% of Pioneer Natural Resources' (PXD) interest in the area. Approach's land cost averages about $500 an acre.
Yet, "Approach gets no credit," says Eugene Robin, an analyst at Cove Street Capital, which owns the shares in its funds. The stock has fallen 16% in the past year, and short sellers, skeptical of Wolfcamp's drilling potential and Approach's production guidance, now account for 20% of the public float.
Based on $85 oil and a conservative assumption that the company will drill 1,100 horizontal locations, Robin estimates Approach's net asset value at $42 a share. Approach estimates it can drill 2,100 sites.
Approach was founded in 2002 by a group of oil-industry veterans, including CEO Ross Craft, and came public five years later. Its acreage, in Crockett and Schleicher counties in Texas, has estimated proved reserves of 96 million barrels of oil equivalent. More than half of its acreage remains undeveloped.
Approach has shifted its focus since 2010 from gas to liquids. Oil accounts for 42% of production; natural-gas liquids contribute 28%, and natural gas, 30%.
Analysts expect Approach to earn $14 million, or 39 cents a share, this year, on revenue of $183 million. Earnings could nearly double in 2014 to 73 cents a share, on a 50% rise in revenue, reflecting increased oil production.
In the past 18 months, Approach completed 35 horizontal wells, mostly drilled in the central portion, or "B bench" of Wolfcamp. They have yielded good results, with wells producing more than 500 barrels of oil equivalent a day.
The company also has begun drilling into the shallow level, or A bench. So far the A-bench wells are performing mostly in line with expectations, but with just a few wells, it is probably too soon to tell.
Recent Price $24.65
Market Value (mil) $990
Estimated 2013 Revenue (mil) $183
Estimated 2013 EPS $0.39
Proved Resources 95.5 Mmboe
Net Asset Value/Share* $42.00
*Cove Street Capital estimate assumes $85 oil
Sources: Cove Street Capital; Bloomberg; Thomson Reuters
The deepest layer, the C bench, is largely untested. Over the next 12 months, the company could put in between 60 and 72 horizontal wells. Good results could put to rest doubts about the potential drilling locations that exist.
Approach says all three layers have an equal number of drilling locations, or the aforementioned 2,100 in all. The company is targeting 450,000 barrels of oil equivalent from each well, and hefty 30% returns. It expects to drill 29 horizontal wells in this year's second half, and is targeting 25% annual production growth. Management couldn't be reached for comment.
APPROACH HAS A SOLID balance sheet, with $55 million in cash to $250 million in debt. Net debt totals 1.5 times this year's expected earnings before interest, taxes, depreciation and amortization. With a $260 million drilling program, the company could outspend its cash flow by $160 million this year. But it has plenty of flexibility, with $370 million in available liquidity.
Last Thursday's sale of its oil pipeline for $108 million also gives it leeway to finish testing Wolfcamp on its own.
Approach is unlikely to remain independent long-term. With a cost exceeding $15 billion to develop its reserves, a larger player would need to become involved.
Robin thinks a sale of the company is likely, citing the CEO's comments that he doesn't plan to form a joint venture. In the next 12 months, he says, Approach could complete enough testing at Wolfcamp to give it a good idea of its value in a sale. Robin thinks a price in the high $30s is reasonable.
Craft, the CEO, owns 2.4% of the company. That gives him a good incentive to strike a deal beneficial to all shareholders.
Re: AREX - Barrons
I have updated my forecast model for AREX and posted it under the Watch List Tab. I am now expecting the company to beat the First Call EPS estimate for Q3 by a wide margin.
AREX's Q2 production was 9,000 boepd (42% crude oil). I am expecting an exit rate at 12-31-2013 of 12,000 boepd (~50% crude oil).
My Fair Value Estimate is $31/share and it will be going higher if they reach the exit rate above, especially if they start reporting good horizontal Wolfcamp wells.
They have a valuable acreage position in the Permian Basin that should make it a very attractive takeover target.
AREX's Q2 production was 9,000 boepd (42% crude oil). I am expecting an exit rate at 12-31-2013 of 12,000 boepd (~50% crude oil).
My Fair Value Estimate is $31/share and it will be going higher if they reach the exit rate above, especially if they start reporting good horizontal Wolfcamp wells.
They have a valuable acreage position in the Permian Basin that should make it a very attractive takeover target.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: AREX - Barrons
Good analysis of AREX. I agree that GST is the better value play right now.
http://seekingalpha.com/article/1707902 ... urce=yahoo
http://seekingalpha.com/article/1707902 ... urce=yahoo
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group