Lucas Energy, Inc. (LEI)
Hi Paul - I have done more analysis on the valuation of LEI and have concluded that this stock is still quite undervalued at $1.86/share..
Your previous review looked at the valuation based on their Eagle Ford land holdings only. Your conclusion that the company was undervalued just on this basis. I have added a bit more clairity and added in the increased value based on actual BOPD production too.
I have reviewed all of their property interests including both their (1) deep well mineral rights and (2) their two different JV agreements w Marathon and Hill Corp. They own a 4,400 net acreage interest in the Eagle Ford. (Note: Yor post on 7/20/2011 verified this as well).
Recent sales have topped out at $21,400/acre. For this analysis I am assuming a fair value price of $11K/acre. 4,400 X $11K/22M shares Out = $2.42/share value.
Here is the interesting "Value Added" based on current 2011 BOED and 2012 (forecast) BOED.
Based on their June 2011 presentation: ( lucasenergy.com ) they state their BOPD production from (1) Operated and (2) Non Operated properties.
On page 17 of the presentation:
Operated Production 2011 - 200 BOPD
Forcasted Production increase 2012: - 600 BOPD
Total for 2012 Forcasted: 800 BOPD x 60,000/BOPD = $48M/20M share Out = $2.40/share
(Note: $60,000/BOPD is the back of the envelope value drillers use when calculating a fair value for current BOPD production when they Buy E&P companies. This number can vary based on the price of Oil but is pretty accurate when you look at past sales).
On page 18 of the presentation:
Gross Non-Operated Production 2011 - 400 BOPD
New Eagle Ford Wells to be completed in 2012 - 600 BOPD
Total Non Operated Gross - 1000 BOPD x 32.5% = 325 BOPD X $60,000/BOPD= $18.5M/20M share Out= $1.05/share.
(Note: Their new JV entitles them to 50% interest in their Marathon deal & 15% interest in their Hillcorp deal, their average vested interest in the non-operated acreage is 32.5%.)
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Therefore, my low end valuation of LEI is $5.87/share. This is the price I would begin to peel off shares. You could justify up to $8.29/share based on the $24K/acre last sale price but that would be the high end. The key is how they meet their 2012 BOPD production targets especially with their operated wells.
I feel quite comfortable with my most recent buys at $2,83/share on 7/21/2011 & 08/17/2011 @ $2.13/share. With the current market price at $1.86/share, I am tempted to buy more shares. LEI currently represents 8% of my E&P basket. I may go in for another Buy next week to bring it up to 10% of the E&P basket.
EKS |
