“We are a Junior Now”: Alternatives Under Review for Anderson Energy

It seems that the downward plunge taken by natural gas prices continues to force the hand of companies associated with the dry gas. Over the last five years, Anderson Energy (TSX:AXL) has seen share values above $5 more than a couple times, only to land in the spot that they are in today at a sub $0.60 share price. Due to the toll the natural gas price plunge has taken on the company, Anderson is now exploring alternatives that could involve selling all or part of the company.

It seems that the downward plunge taken by natural gas prices continues to force the hand of companies associated with the dry gas. Over the last five years, Anderson Energy (TSX:AXL) has seen share values above $5 more than a couple times, only to land in the spot that they are in today at a sub $0.60 share price. Due to the toll the natural gas price plunge has taken on the company, Anderson is now exploring alternatives that could involve selling all or part of the company.

Founder J.C. Anderson is a legend around Calgary, with the enterprises bearing his namesake typically holding esteem among conversations in the Plus 15 walkways that connect Calgary’s downtown corridor. But these days Anderson has dipped due to operating in a different era, compared to five years ago, when natural gas wasn’t just economic, it was downright lucrative. The company’s reputation precedes itself, whether deservingly or not.

“We’re not getting the value in the market,” J.C. Anderson told the Calgary Herald. “Gas prices are in the can and capital is hard to come by for juniors, and we are a junior now, and those are the kinds of things we’re worried about.”

Strangely enough, the company has been diligently exchanging BOEs for BBLs by improving its Cardium light oil production. By changing focus from gas to oil, the Anderson team has backfilled its oil production numbers up to 36% oil to end 2011, up from the 22% that closed out 2010. That said, judging by the price, this improvement cannot help Anderson overcome its reputation as shallow gas producers.

While the value of Anderson’s cash flow has improved, their share price has diminished. A year ago, the company was trading at $1.17, but today is less than half that value. It’s understandable why the company would be considering drastic measures while facing such headwinds.

What’s not quite as understandable is the reasoning as to why Anderson is being valued so low. The company’s portfolio includes central Alberta Cardium formation oil production with more wells locations left to drill, along with $495 million in tax pools. Even Bloomberg has Anderson Energy pegged at an enterprise value of $240 million, but its market cap comes in at just $100 million.

With 7,700 barrels of oil equivalent per day, Anderson Energy met its target over 2011 in average production, with fourth quarter output registered at 7,930 boe/d (of which approximately 2772 bbls/d in oil). The fourth quarter also gave Anderson a reason to report new Cardium discoveries in three new areas with a total of 11 gross (9.3 net) Cardium horizontal oil wells drilled.

The plan going forward for Anderson Energy, should a sale not come in the near term, is a “conservative” first-quarter 2012 Cardium horizontal oil drilling program. With a price tag of only $15 million (one-fifth of its $75 million spending in 2011), Anderson plans to peg spending to cash flow this year.

As well, it can be assumed that Anderson will continue on its path to bringing oil production to the 50% mark of the company’s total, replenishing natural gas production with a light oil that’s more economic in today’s market. The company isn’t going to groundbreaking territory to find its oil, as the Cardium is an older, well-established play, which is seeing resurgence in activity due to vast technological improvements in drilling and fracturing techniques.

G. Joel Chury
VantageWire

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