This week, independent exploration and production companies are out strutting their stuff in San Francisco, as they seek to woo analysts, investors, and portfolio managers at the Oil & Gas Investor Symposium. It's a fine opportunity to take a peek at some companies that don't otherwise receive much attention.
The most interesting presentation I caught on Tuesday came from Venoco (NYSE: VQ ) , which happens to be a California-focused E&P. The company's IPO priced at $17 back in 2006, and the shares briefly dipped under $2 last December. At the current share price of roughly $11.50, shareholders are either morose or ecstatic, depending on how long they've been on board.
Venoco has some interesting prospects, including the Monterey shale. Like the Bakken shale that Continental Resources (NYSE: CLR ) , EOG Resources (NYSE: EOG ) , and Marathon Oil (NYSE: MRO ) are unlocking over in North Dakota and Montana, this is an oil play. Arco, now part of the BP (NYSE: BP ) empire, apparently discovered the formation's potential by accident, when a hole in the casing of an offshore well flowed 1,500 barrels of oil a day.
The Monterey is massive, and Venoco estimates more than 10 billion barrels of original oil in place (OOIP) across its leasehold. The highly complex reservoir, combined with a relatively difficult regulatory environment, may hamstring large-scale development, however.
Venoco makes things easy for us by excluding Monterey upside in its various slides on potential firm value. Using a futures curve to determine the net present value of proved reserves, Venoco appears to be priced at a significant discount, second only to Whiting Petroleum (NYSE: WLL ) out of a 24-member peer group. Some of that has to be the result of Venoco's capitalization, which is laden with considerable debt. Still, the shares might very well be undervalued.
Following its sale of the Hastings field to Denbury Resources (NYSE: DNR ) , Venoco's got proved reserves of 93.7 million barrels of oil equivalent that are 56% oil-weighted. Using the then-prevailing five-year average futures prices -- around $65 per barrel of oil, and $7 per thousand cubic feet (mcf) of gas -- the present value of those reserves was calculated at $1.4 billion at year's end. Adjusting for debt and other balance sheet items, that translates to a net asset value of more than $13 per fully diluted share.
Even when severely handicapping Venoco's probable reserves, substantial unrisked resource estimates, and the additional potential of the Monterey shale, the shares appear pretty interesting at today's price.
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