Breitburn/Lynden Energy transaction analysis

Here is one way to analyze the recent Breitburn transaction.

The Breitburn transaction includes 4.7 net wells and 403 net acres for $19.3 million.  The price per acre equals $48k/acre which can be assigned to proven/developed acreage.  The transaction equates to approximately 86 acres per well.

To approximate the amount Lynden’s developed and undeveloped acreage, one can multiply their net wells by 86 devloped acres/well.  Lynden has a total of 33.0 net wells equaling 2,830 developed acres.  With a total of 6,466 net acres, Lynden’s remaining undeveloped acreage equals 3,636 acres (6,466 – 2,830).  After the sale to Breitburn, Lynden will have 2,427 remaining developed acres (2,830 – 403). 

Assigning a value of $48,000/acre to Lynden’s remaining developed acreage and using a conservative number of $10,000/acre for their remaining undeveloped acreage results in a Wolfberry value of $153 million (2,427 acres x $48k/acre + 3,636 acres x $10k/acre).  These conservative numbers result in a fully diluted share price of $1.07/share ($153 million / 143.5 million shares).  Using $20k/undeveloped acre results in an additional $0.25/share.

Mitchell Ranch is still a very exciting upside opportunity.  With other companies delineating resource potential around Mitchell Ranch and Lynden interpreting their own seismic data, Lynden’s 34,150 net acres could become very valuable.  At $2k/acre, the Mitchell Ranch property could add $0.48/share and at $4k/acre the upside could be $0.95/share. 

What does all of this add up to?  LVL’s Wolfberry valuation conservatively ranges from $1.07/share to $1.32/share and Mitchell Ranch adds from $0.48/share to $0.95/share totaling a range of $1.07/share (no value assigned to MR) to $2.27/share!  Obviously, an upside to today’s share price.

One last thing to keep in mind… With Chesapeake focusing on acreage outside of the Permian Basin, it would not be surprising if they let their Mitchell Ranch term assignment expire.  Should this occur, our view is that this would be a positive by increasing LVL’s Mitchell Ranch exposure by 17,000 net acres. 

Lynden to sell 403 acres to Breitburn for $19.3 million!

Lynden has entered into a deal to sell 403 net acres to Breitburn for $19.3 million (click here).  This equals $48k/acre!!!

Comparing the QEP transaction metrics to Lynden

Comparing the QEP transaction metrics to Lynden:

QEP, $950 million

6.7 mboe/d = $142,000/mboe/d
47 mmboe net proved = $20.21/barrel
26.5k net acres = $36,000/acre

LVL’s Wolfberry has:

1,200 boe/d (after royalties) x $142,000 = $170 million = $1.19/share based upon 143.5 million shares (fully diluted)
7.8 mmboe net proved = $158 million = $1.10/share
6,466 net acres = $232 million = $1.62/share

LVL's Wolfberry project alone equates to $1.10 to $1.62/share based upon QEP metrics for similar acreage!  These metrics do not include Mitchell Ranch which gives Lynden an additional upside!

QEP to acquire Permian Basin acreage for $950 million!

QEP announced it will acquire Permian Basin oil properties in Martin and Andrews counties for $950 million (click here).  The acquisition includes 6.7 mboe/d, 47 mmboe of net proved reserves and 26.5k acres.  Valuation metrics equate to $142k flowing barrel and $36,000/acre!

Lynden Energy reports results for quarter ending 9/30, 1,664 boe/d!

Lynden Energy Inc. reported their quarterly results today.  Highlights include total production of 153,088 boe and 1,664 boe/d!  This represents a 56% increase over their June 30 results! 

Cormark initiates coverage on Lynden! $2.00 target price!

Cormark Securities, Inc. initiated coverage on Lynden Energy Corp. today.  They have a "Buy" rating and a $2.00 price target.  Some quotes from the coverage:

"The hottest shale play in the U.S."

"Significant discount to larger peers in the Permian" - Currently trading at $72k/boed and $18.50/boe on reserves versus peers at $125k/boed and $31.00/boe.

Cormark says "Trading at a deep discount to US-listed peers in the basin, Lynden Energy represents one of the most attractive investments in our small cap "international" universe.  We expect a material rerating of Lynden in the market near term."

"A relatively small company like Lynden represents an accretive, attractive tuck-in acquisition for many larger players in the area."

"We expect a material rerating of Lynden in the market near term as ... new entrants look for acquisitions with the type of asset base currently held by the company."

Cormark's coverage along with other recent analysis is very bullish on Lynden and concludes that Lynden is currently trading at a deep discount.

Thom Calandra report on Lynden Energy

Thom Calandra wrote an article on Lynden Energy.  It states, "I don't think Lynden even makes the cheap end of the graph," mentioning that he's in "no rush to sell."  Here's the link (click here).

Now that almost 14 million warrants were either exercised or expired on 10/27, it's possible some of the warrant selling will decline leading to an improving share price.  Nothe that there are 5.9 million warrants that expire on 11/12 and 295k that expire on 11/19.  Once those two periods are over, the next set of warrants won't expire until May 2015.