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EQUITY RESEARCH April 23, 2007
WEEKLY RESEARCH Philip J. McPherson H
A Weekly Recap of the Latest News & Events in the E&P Sector Director of Research pmcpherson@ckcooper.comC
"Rocky Mountain Excitement" R
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E News of deal flow continues to increase in the Rocky Mountain region. Part of this renewed interest is being sparked by last weeks confirmation that the Federal Energy Regulatory Commission (FERC) has S
approved Kinder Morgan's planned Rocky Mountain Express (REX) pipeline project, with first gas now stE
expected to flow 1 quarter 2008. R
This REX pipeline will encompass approximately 1,663 miles and connect the valuable natural Y
gas resources of The Rocky Mountains with the Mid-West consumer market. The pipeline will L
have capacity of 1.8 Bcfe per day, of which K
nearly 100% has already been firmly committed by operators in the area. E
E
The pipeline will be constructed in three segments. The first segment was completed last year and has been on production since W
June of 2006, this segment encompasses 136 miles connecting the Meeker Hub in Colorado to the Wamsutter Hub in Wyoming. The second segment of 192 miles of pipeline connects the Wamsutter Hub to the Cheyenne Hub in Colorado and was completed in February of 2007. The final segment which just received approval will encompass 713 miles and connect the Cheyenne Hub to Audrain County Missouri and is projected to be in service by January 2008. An additional segment of 622 miles to the Clarington Hub in Ohio should be operational by June of 2009. We estimate that once completed the 20% basis differential that Rocky Mountain producers currently face from their Gulf Coast cousins will shrink by at least 10%. This means on average Rocky Mountain producers could receive $0.50 to $0.75 more per Mcfe going forward. While this might not sound like a big number, it has serious implications on well economics, payback time and PV-10 value for reserves. Higher PV-10 values will allow producers to access lower cost debt and accelerate development. Members of our peer group that stand to benefit from this are Petroleum Development Corp. (NASDAQ: PETD) and PRB Corp. (AMEX: PRB). This new infrastructure is long over due and will continue to elevate valuations of Rocky Mountain assets. We have included a detailed map on the following page.
IMPORTANT DISCLOSURE ON PAGE 3 ™ 18300 Von Karman Avenue, Suite 700 ™ Irvine, California 92612 ™ (949) 477-9300 ™ Fax (949) 477-9211 ™ E-Mail: research@ckcooper.com ™ Phil McPherson - Director of Research
IMPORTANT DISCLOSURE ON PAGE 3 ™ 18300 Von Karman Avenue, Suite 700 ™ Irvine, California 92612 ™ (949) 477-9300 ™ Fax (949) 477-9211 ™ E-Mail: research@ckcooper.com ™ _______________________________________________________________________________________ IMPORTANT DISCLOSURE: Stock Ratings: Within our three tier rating system, we provide a rating based upon our perceived performance of a particular issue. In general, a BUY rating signifies that the stock will outperform the general markets. A HOLD rating signifies that the stock is fairly valued and/or reached our target price and we would not recommend aggressive accumulation and would, in certain instances, recommend taking profits. A SELL rating signifies that the company is going to under-perform the general markets. The methodology used to determine a rating includes our views on the overall stock market, commodity price environment, each issue's growth profile, management's execution, and expected total return over the next 12 months. Price targets are based on, but not restricted to, analyses of market risk, cash flow, EBITDA, EPS, and our Risk-Adjusted Break-Up Value (RABUV). Risks: C. K. Cooper & Company's peer group is comprised of small-cap exploration and production companies. Investors should take note that small capitalization stocks have higher risks associated with trading volatility, access to capital, and liquidity. Operating results are highly dependent upon a number of factors including, but not limited to, the price of oil and natural gas. Analyst Certification, Compensation and Owne... [download for more]
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