Per UBS....EF sale
— Monetization of Eagle Ford Shale by late December or early January.
The Eagle Ford Shale position should be the first asset to be monetized as
it’s the smallest of Magnum’s three core unconventional resource play
positions, but one with the best-situated acreage (surrounding EOG’s
position in Gonzales County) and the one boasting the most robust
economics. Management disclosed on the 3Q12 conference call that it has
seen considerable potential buyer interest, primarily from domestic E&Ps,
and expects to decide on a deal around year-end. We estimate that an
outright sale of its acreage outside of Pearsall - Gonzales, Lavaca,
Fayette and Lee Counties (20,777 net acres) - could bring in $550-$750
million, above our discounted cash flow based NAV of ~$400 million.
The mid-point of our estimate assumes $200 million for ~3.2 MBoed of
production (~85% oil) and ~$25,000 per undeveloped acre (in line with
management’s expectation of $20,000-$30,000 per acre and consistent
with the KKR/Cimarex deal valuation). Given the relatively small
production/cash flow impact, we estimate a sale at $650 million would
lower 2013 EV/EBITDX multiple by ~0.5x, and increase our 2012-2015
debt-adjusted production growth by ~200 basis points to 16%.
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