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Msg  90093 of 557652  at  3/23/2012 2:56:09 PM  by


 In response to msg 90092 by  doomonyou
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Re: Buying Arcan Resources Again

sn comments on ARN

What Happened
– We had a detailed corporate update from Arcan, which is

prompting some tweaks to our financial model, but our macro on the name

continues to be sound.

Read Through – We are revising our production forecasts essentially back one

quarter to account for field delays Arcan experienced in the latter parts of 2011,

and early 2012. A multitude of weather, infrastructure related delays as well as

downtime associated with frac timing and pump jack installation meant

4Q11/1Q12 production additions were quite lumpy. The company was

successful in so far as meeting its 6,000 boepd exit (adding credence to those

following point-in-time production data points), but field delays meant production

fell below 5,000 boepd in early 2012 and now appears to be closer to the

~6,000 boepd mark.

Arcan has secured an acid supply for its entire 2012 program (and even

excess) but because of the nature of pad drilling and third-party pipeline issues,

production additions have staggered recently. To preserve balance sheet

flexibility, Arcan has opted to run two rigs; one operating in Ethel and another

drilling the southern extension of its land base (T64 R8-9, see page 4 for map),

where offsetting industry peers have seen IP30 rates above 1,000 boepd.

Valuation and Recommendation – Although many oil and gas stocks have

become "cheaper", we continue to feel Arcan represents materially more upside

than downside at current levels. The company is fully funded for its 2012

program, and market focus on top-line production neglects the pending

improvement to corporate netbacks, as well the fact a good majority of Arcan’s

drilling efforts will be in areas of the reefal bank that have witnessed the highest

IP30’s in the play. With one of the highest investor recycle ratios in this analyst’s

universe at 1.7x, we reiterate our Buy rating, while trimming our target price to

$7.50 (from $8.00) to account for the aforementioned push-pulls to our

production forecast. Our model uses a sum-of-the-parts valuation.

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Msg # Subject Author Recs Date Posted
90107 Re: Buying Arcan Resources Again bigenergybull 4 3/23/2012 5:45:25 PM
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