(Nasdaq : DBLE)
Initiating Date: 05-08-06
Initiating Price: $18.29
12-18 Month Price Target: $30.00
Upgraded on 06-15-06 from 4 to 6 (stock price: $14.59)
From January 1, 2003 through December 31, 2005, the company participated in the drilling of 252 gross wells comprised of 66 exploratory wells with one dry hole, 176 development wells with no dry holes, 9 water injection wells and one monitoring well. Of the 66 exploratory tests drilled during the three year period, 61 of the test wells were coal bed wells that were drilled in pod groups of 24 wells, 24 wells and 13 wells, respectively. During the same period, DBLE added estimated proved reserves of 38.3 Bcfe at an average finding costs of $0.70 per Mcfe. Average annual production replacement was 543% during this three-year period, and production has grown from an average daily rate of 3.9 MMcfe per day in 2003 to 8.4 MMcfe per day in 2005. Production in December 2005 averaged 7.2 MMcfe per day.
As of December 31, 2005, the Company owned interests in a total of 626 producing wells. The Company has an interest in 504,899 gross acres (217,410 net), of which 413,153 gross acres (212,630 net) are undeveloped.
For fiscal 2005 over 2004, the company reported a 56% increase in revenues ( to $20.5 million) a nearly 40% increase in cash flow (to $10.3 million) and a 34% increase in proved reserves (to PV10, $126 million). Approximately 90% of the fiscal 2005 revenues were generated from two primary projects. The first is the Cow Creek field in the Washakie Basin of central Wyoming, which the company operates. The second is the Pinedale Anticline located in the the Green River Basin of southwestern Wyoming. The company's Pinedale interests amount to participation in three different sections in the project, which is operated by Questar Corp. (NYSE:STR). Beyond these two projects, the company has what I see as an intriguing portfolio of both development and exploratory properties. The Project Summary below delineates the most important of these.
In addition to the specific portfolio, there have been a number of technological developments in the oil and gas exploration and development ("E&P") theatre that have improved the fundamentals and success of the business in general. As the report suggests, there are a number of these technologies, such as 3-dimensional seismic computer modeling and horizontal drilling techniques that clearly enhance DBLE's strategy. Moreover, the marked increases in oil and gas prices over the past two years, and the supply and demand scenarios that support their continued strength are also positive components to the story.
Lastly, and perhaps a bit more conceptually, I think it is important to recognize the genesis of the domestic oil and gas business over the past 15 years or so. The energy crisis of the mid 1970's, brought on in part by the OPEC members asserting greater control over their oil assets, created considerable activity in the domestic exploration and production space. Rig counts rose quite dramatically along with oil prices, as domestic companies (including large well established oil and gas companies) invested heavily in leases and exploration. That activity (as measured by rig counts) peaked in the early 1980's along with the price of oil. However, for the better part of the 1980's and through the remained of the decade, oil prices experienced a marked decline; in part (I would argue) the result of the backlash/correction of the technical aspects of any marked rise in commodities, but also because of clear fundamental issues including increases in production worldwide on the supply side, as well as other demand side dynamics such as the Asian economic crises of the second half of the 1990's. The result was that once soaring domestic activity (again as measured by rig counts), reached historically low levels by the start of the new century. Domestically, the result of that ride was the "release" (and/or abandonment) of large portions of domestic oil and gas leases at significant discounts. That dynamic created an opportunity for small E&P companies with the foresight to recognize another coming opportunity, to acquire and/or control leases that during the previous period of high exploration activity, demonstrated characteristics conducive to future production. As the new "energy crisis" has emerged, many of those companies, armed with attractive leases with promising exploration and/or development data, new technologies and better commodity prices which have ultimately increased their access to capital as well as improving the underlying economics of their projects, are now positioned to potentially take advantage of the convergence of those notions. I believe DBLE represents one of those enterprises.
In short, DBLE represents a relatively undiscovered (profitable) domestic E&P story with a significant portfolio of both development and exploration targets. While there is much to be done here to definitively justify better (perhaps much better) valuations, and those endeavors will likely encounter some hurdles along the way, I think DBLE holds considerable potential from both fundamental and investment perspectives.
DISCLAIMER STATEMENT
The information contained in this report has been written by David Lavigne of EdgeWater Research Partners LLC ("Edgewater") and has been derived from sources considered reliable, but cannot be guaranteed by us. Edgewater and Lavigne are not aware of any material conflict of interest known at the time of the publication of this report. Financial projections and estimates herein represent our independent analysis based upon information in conjunction with the Company's publicly available financial statements. Edgewater and Lavigne may maintain positions in the securities referenced, which may change at any time without notice. Edgewater does not receive fees, warrants or any other compensation from issuers in connection with its research. It does however, encourage issuers and it representatives to subscribe to Edgewater's research, and from time to time, issuers and or their representatives may also purchase individual copies of Edgewater's research products. Edgewater and Lavigne may own options, rights or warrants to purchase any of the securities of the Company. This report is for informational purposes only and is not to be construed as specific investment advice or recommendations, nor as an offer to sell or a solicitation of an offer to buy any securities. The securities referenced are speculative in nature and may not be suitable for your specific investment objective. For specific investment advice or recommendations, please consult with your investment representative.
