There are several Aussie energy companies operating in the US that I am holding. I think that Sundance, SEA.ax/SDCJF has as much near term potential as Mart. They are in the midst of a merger offer to buy Texon, TXN.ax/texof, another Aussie with ~ 7300net acres in the Eagle Ford Shale oil window. The merger is set to close in early March but you never know if another offer might come.
Even if the merger doesn't happen, Sundance is in great shape. They sold over 3,000 acres of Bakken land for 170million in cash. They have over 130million in cash to drill, baby drill. They have a big credit line that is reserve based and should get a big boost after the merger. So Sundance should have no problems drilling their ~40,000 Mississippian acres. The Mississippian is shallower and cheaper to drill than the Bakken. The average well is 300-500boepd and about 80% oil and close to the Eagle Ford in return percentages.
Sundance also has Niobrara acreage with a combination of JV acres with big partners and operated land. Nearby is Wattenberg land that Sundance is drilling cheap vertical wells tha tproduce around 50bpd each and are very cheap.
Sundance has very good mgmt and ended 2012 at about 1200boepd. They project an aggressive drill program in 2012 and an exit rate of 5000boepd.
Here is a broker's report on Sundance from Canaccord.
MOVING TO SUBSTANTIAL PRODUCTION
We are assuming coverage of Sundance Energy Australia (SEA:ASX) with a Buy rating. We are attracted to Sundance for its diversified acreage position and its returns-focused strategy. Sundance now has a sizable position within three top US oil resource plays, with a clear fourpoint strategy, 1) Early entry at low cost, 2) High-quality diverse assets, 3) Operatorship, and 4) Repeatable cash flow generation.
Sundance has transformed into an operator that owns a deep inventory of oil-weighted reserves and resources in the leading US oil resource plays. We see Sundance as having the potential for significant production growth over the coming three years, and a healthy balance sheet should expedite this growth. Our initial risked valuation of SEA is
A$2.04; future changes will be based in part on the achievement of key production milestones.
• SEA is redeploying the proceeds from the strategic sale of its nonoperated South Antelope acreage into its operated DJ Basin, Mississippian Lime (ML), and Eagle Ford (pending acquisition of Texon acreage) projects. SEA has a Q4-2013 production target range of 4,140-5,000 Boe/d, which is over 3x the FY 12 production exit rate of 1,266 Boe/d.
• For a mid-cap company of ~A$356.3m, SEA’s balance sheet and funding position are extremely strong, with US$157M in cash and a US$300m credit facility currently drawn to US$30M. Sundance is preserving its working capital by acquiring Texon through script, and we believe the company will use its cash reserves both to fund its extensive drilling program and for further focused acreage
• SEA has built an impressive 38,000-acre position in the
Mississippian Lime at very low cost, with particular focus in Logan County. In addition to the Mississippian Lime, SEA is also targeting the Woodford shale in the same area, and, coupled with the Texon acquisition, these assets have the potential to underpin long-term sustainable production.
• SEA has an impressive management team that continues to deliver results, increase reserves and upgrade guidance. We expect the company to grab the attention of larger-cap funds as SEA delivers on its production targets over time.
Recommendation & Valuation
We initiate coverage with a BUY recommendation and 12-month price target of A$2.04ps. Our valuation and sum-of-the-parts-based target price are A$2.04(see Table 5); future changes will be based in part on the achievement of its stated production and acquisition milestones.