|Shares Out. (in M):||12||P/E||50.0x||50.0x|
|Market Cap (in $M):||98||P/FCF||30.0x||30.0x|
|Net Debt (in $M):||70||EBIT||25||25|
DBLE has trmendous leverage to the emerging Niobrara shale (oil) in Wyo/Co, similar to previous idea SSN. The company has 73k net acres in the play.They will drill 1or 2 wells in 2011, and I would be surprised if they ddi not partner with industry, or bring in a financial sponsor. Management has indicated that they will not issue shares anywhere near this level, but we have all heard that before. The preferred is non-putable, non convert perpetual, so there are no dilution issues. Company was CF and GAAP positive in 2010.
For anyone with a recollection of the "old" DBLE, this is new management who in conversation appear to be competent for a micro-cap. The old DBLE bet the ranch on a 30,000 foot CBM well -I'm not kidding- which they did not even complete. We were short the stock at the time.
Acreage activity : The recent CHK/Cnooc deal was done at $4,756/acre. If only 25% of DBLE acreage is prospective, that equates to $14/share. $21.50 at 50%. This includes $144 mm of PV 10 value from proved reserves and the $70 mm of preferred/debt. The proved are primarily CBM, but at current prices the play is economic.
EUR Estimates : Aside from CHK, notables such as EOG and Noble have ammased acreage in the play. NBL says they see Estimated Ultimate Recovery (EUR) of 290k bbl on 160 acre spacing. CHK estimates north of 400k bbl and Continental estimates over 500k bbl/location. Using NBL EUR assumptionon and 320 acre spacing would yield $28/share if just 25% of the acreage is prospective. If 50% is prospective, you have upside to $50/share. Even if they farm out 50% to a partner in order to drill up the play, that would still net to $14-25/share. With just 11.6 mm shares out, there is good leverage to play if it works.
Downside protection : PV10 supports over $6/share.