I was doing some research this weekend on Equal Mississippian acreage in order to estimate its value, and this is what I found so far:
Acreage prices range from $3500 to $4200 per acre, based on that metric Equal acreage is worth $70m to $84m gross, and if we adjust for their partner interest at 50% of about 30% of the land, we get a value of $60m to $75m.
Some reference land prices: http://www.derrickpetroleum.com/2011/10/04/dynamic-production-offers-mississippian-acreage
Value based on drilling
According to Sandridge they usually establish 3 wells per section, , according to this metric Equal Energy should be able to identify about 90 locations on its acreage, if we were to apply Sandridge NPV per well of $4.9m, we get a gross NPV value of $441m gross or $375m net to Equal Energy. Should Equal decide to develop this play, it will have a multi-year drilling inventory ahead of it, and will create significant value to shareholders from this asset throughout this decade.
When you combine the value of the Mississippian holdings with the Cardium and Viking position, this company is truly a steal; I submitted an article to Seekingalpha this weekend discussing Equal Energy and I put some special emphasis on their Mississippian exposure, once this story is out, I believe the company valuation will be re-rated in short order, especially when considering the small float and insignificant institutional ownership; as a matter of fact there is a risk of an overshoot in terms of valuation rather than undershoot in the next 12 months.