Monday, August 23, 2010

Energen to Acquire Wolfberry Properties for $185 Million

Energen Corporation announced today that it will acquire 8,700 net acres of Wolfberry land in Martin County for $185 million. Acquisitions of Wolfberry properties are heating up in Texas. This deal equals $21,264/acre and includes only 19 existing wells.

Lynden Energy Corp.'s (LVL) Wolfberry project is not far behind this property in terms of development and could be there soon. One can easily extrapolate LVL's value based upon the Energen deal.

If we assume that the 19 wells cost approximately $1.6M each and take that out of the price, the Energen deal is essentially worth $155M for the 8,700 acres. This equals $17,770/acre.

Lynden, together with CrownRock has approximately 15,500 net acres with 5 wells in the Wolfberry. Using Energen valuation metrics, the Lynden/CrownRock Wolfberry is worth (15,500 x $17,770) + (5 x $1.6M) = $283M (assuming that LVL’s Wolfberry is as valuable as Energen’s).

Assuming that LVL’s interest in the total Wolfberry acreage is approximately 33%, LVL’s Wolfberry is worth ($283M x 0.33) = $94M.

With 73.3M shares outstanding, LVL's value of their Wolfberry play is $1.28/share!

This does not include any value for Mitchell Ranch, Paradox Basin or other assets such as cash. Mitchell Ranch could drastically increase LVL's value if even a portion of it is successful. LVL could be looking at possible 10x or more increase in their stock price!

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