| | | Initiating Coverage with Outperform Rating and$4.00 Price Target
Summary
We are initiating coverage on American Eagle Energy (AMZG) with an
Outperform rating and $4.00 PT. AMZG is a small cap E&P focused on
Bakken/Three Forks (“3F”) development in Divide County, North Dakota.
Its core Spyglass project encompasses ~25,500 net acres, where the
company employs an aggressive operated drilling program. Additionally, it
has established a strong track record of executing strategic acquisitions and
financings to increase the size and scale of its assets and maximize value.
Key Points
Strong Three Forks (“3F”) Well Results. AMZG was producing from
25 operated wells at Spyglass, as of 9/30/13, the majority of which are 3F
wells, and production results have been encouraging. The average 30-
day IP rate for operated wells put on-line in 2012 was ~450 BOPD and its
longer producing wells continue to average production rates of 150-250
BOPD after the first year of production. The solid IP rates and lower
relative declines of these wells translate to favorable well economics by
our estimates.
Proven Ability to Execute Strategic Acquisitions. The company
has entered into several transactions within the past year to acquire
producing properties in Spyglass at attractive valuations that have helped
establish a critical mass for AMZG. These acquisitions totaled ~$109MM
and included over 1,700 BOEPD of production when the transactions
were announced, less than $65,000/BOEPD, which is attractive given
that it attributes no value to upside. We expect management to continue
to execute similar transactions in the future that can enhance upside for
the company at accretive valuations.
Middle Bakken Upside With Encouraging Early Results. While
development to date has mostly targeted the 3F formation, there is
significant Middle Bakken potential that AMZG is beginning to derisk.
The company's first Middle Bakken well of 2013 recorded an
impressive one-week IP rate of 540 BOEPD and the well continued
to produce nearly 260 BOPD in its eighth month on-line. Development
in the Middle Bakken is accelerating and additional results from these
wells represent potentially catalytic events. Furthermore, current proved
reserves attribute little value to the Middle Bakken, leaving significant
upside that can begin to be booked if the company can establish
commercial production in this formation on a greater portion of its
leasehold.
Our $4.00 price target is supported by our estimated NAV, which
allocates $2.06 for proved reserves adjusted for balance sheet items
and $2.08 for unbooked Bakken/3F development at Spyglass. At current
trading levels AMZG is trading around its proved value, indicating that an
investor could secure significant upside at little cost, in our view.
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Above is summary from Northland report, which has a $4 PT on the stock. Complete report can be downloaded here, Northland AMZG report 10-21-13 . The report draws a comparison of AMZG's per-well economics to Oasis (OAS), which is most intriguing given how much higher OAS stock is being valued based on the traditional metrics vs. AMZG. There are some good charts in the AMZG presentation (thanks for the link Jake) that illustrate how low AMZG is being valued vs. its peers (including OAS).
With any amount of luck they will announce an uplisting to the NYSE MKT in conjunction with their 3Q earnings report. This would be quite an achievement to say the least. I'm trying to think of who the last OTC E&P stock to uplist was and all I could come up with was Saratoga Resources, who uplisted in 7/11. Can anyone name an E&P company who has uplisted more recently than that? |
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