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.
Wondering how to further research an oil stock like
Venoco? Oh, do I have a
seriesfor you, Fool.
This article was originally published as
A Promising West Coast Oil Playon
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