Summary
- The company will acquire 4,100 "bolt-on" acres for $38.4 million of stock.
- The seller will also purchase $150 million of stock.
- This cash will allow for some debt reduction and the extension of the second lien loan by two years.
- Bolt-on acreage additions can be extremely profitable and low risk.
- At a little more than one times earnings, this stock is still very cheap even after the transaction.
- This idea was discussed in more depth with members of my private investing community, Oil & Gas Value Research. Get started today »
Sometimes, Mr. Market goes overboard when it comes to reactions to the news. Penn Virginia's (PVAC) share price was already below the per share earnings posted for the last fiscal year when the company announced a deal. Mr. Market panned the deal the minute it was announced. But acquiring acreage and cash in the current environment is nothing to be ashamed of. At some point, Mr. Market will realize the flexibility gained by this company.
Second, the transaction would add production and cash flow, and lower our cost structure through the inclusion of Juniper's approximate 4,100 acres, with no expected increase to G&A."
Source: Penn Virginia Third Quarter 2020, Earnings Conference Call Transcript.
Source: Penn Virginia Third Quarter 2020, Earnings Conference Call Slides
The 4,100 acres mentioned in the conference call could be "pure gold" to this company. The company basically paid less than $9,400 per acre using the $38.4 million price shown in the presentation. That probably is a decent price in today's very depressed market. Besides, 4,100 acres is probably too small to market effectively. Hence the bargain price.
But it was not too long ago that companies were paying $50,000 an acre for decent acreage with some managements rumored to be willing to pay as much as $3 million per drilling location in the Permian.
