PRIMARY PETROLEUM (PIE:TSX.V
and PETEF: PK) is pleased to provide you the following article
written by Rhonda Brammer from
BARRONS
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For Rosetta Resources, Everythings Coming Up Roses
Back in mid-June, Barrons published an upbeat piece on Houston-based Rosetta Resources,
a smallish oil-and-gas firm run by a team of seasoned execs who left
the likes of ConocoPhillips and Burlington Resources to strike out on
their own.
Decades in the oil patch enabled them to snap up outsized
stakes in a couple of the most intriguing shale plays, long before
rivals began bidding up land prices in the Eagle Ford in South Texas and
the Southern Alberta Basin in Montana.
The stock (ticker: ROSE) was trading at
25.
As the accompanying chart shows, following publication of the
story, the shares dithered for a spell, until spurting to an all-time
high of 38 last week, closing Friday at 36.
What sent the stock soaring was more
than just the sharp rise in oil prices.
The sparkling gain also was
powered by Rosettas smashing success in the Eagle Ford.
In barely a year, production there has surged from scratch to an
awesome 55% of the companys total output.
And since the Eagle Ford is
rich in premium-priced liquids, margins are expanding apace.
Rosetta caught Wall Street by surprise
as it sharply bumped up its estimate of recoverable reserves from the
Gates Ranch area of Eagle Ford, where it has drilled 22 wells with a
100% success rate, to 7.2 billion cubic feet equivalent per well, a huge
leap upward from the initial estimate of four BCFE.
What the revised estimate implies at
current prices is that each wells discounted net present value is $13.4
million.
Assuming all 240 development locations were drilled this year,
the value of Gates Ranch alone approximates a cool $3.2 billion—a
stunning 40% more than Rosettas entire enterprise value (stock-market
value, plus net debt).
And Gates Ranch comprises less than half of
Rosettas acreage in the Eagle Ford.
A wild card with potentially huge
investment upside is 300,000 acres that Rosetta acquired in the Southern
Alberta Basin in Montana.
The acreage surrounding its first five
exploratory wells, all of which hit pay dirt, contains 13 million to 15
million barrels of oil per square mile, according to Rosettas early
reckoning, an amount comparable to the famed and enormously productive
Williston Basin just to the east.
Management, which has tended to
understate and overdeliver, says it will release details about the
Alberta Basin after drilling six more exploratory wells.
However, CEO
Randy Limbacher recently raised the possibility that Rosetta might "step
up" exploration by taking on a partner, "if we can get the right deal
done."
Rosettas earnings are growing by leaps and bounds: from 38 cents a
share in 2009 to an estimated 60 cents or so this year and $1.20 to
$1.30 next—which translates into $3.30 in cash flow this year and a
formidable $4.80 to $5.20 in 2011.
Despite the stocks nice run, there still seems plenty of room on the
upside.
At $35, its selling comfortably below a current net asset
value of $40 to $45, which by no means fully reflects the terrific
potential of the Alberta Basin.
—Rhonda Brammer
Primary Petroleum Corp
Suite 800, 744 4th Avenue SW
Calgary Alberta T2P 3T4
Canada
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