A quick SPI valuation

At the October ’09 BC land sale, the parcel adjacent to Canadian Spirit Resources Inc. (SPI) and similar in terms of topography and geology sold for $61 million for 3,738 hectares. This equals $16,300/hectare and $6,600/acre according to a recent Salman Partners research report.

SPI has a 35% interest in 44 sections of deep rights which equals 15.4 net sections or 4,011 net hectares (9,856 net acres).

The value of the deep rights based upon the October sale is $65.4M (9,856 acres x $6,600/acre).

SPI currently has $9.7M in cash.

Their Montney joint venture partner, Canbriam Energy Inc., has committed $29.0M of capital expenditures in return for a 65% interest in the deep rights which equals paying the first $10.15M ($29.0M x 35%) of SPI’s portion on SPI’s 35% share.

If Shell elects to proceed with the Gething joint venture, their lands would be pooled and SPI would retain 37.5 net sections. The value of the $50M spent by Shell on infrastructure and wells to SPI would be 25% of $50M = $12.5M.

SPI has tax pools of $45.9 million which has an M&A value of $6.5M.

Adding just those values up = $108.25 million.

With 48.7M shares outstanding, the value of the above mentioned items is ($108.25M/48.7M) = $2.22/share.

There is at least $4.0M of value related to the infrastructure and tie-in to the Spectra line. There are also wells and infrastructure that SPI has associated with the Gething project along with other company assets that are not included in the above valuation. They would add significant value to any M&A valuation.

With Talisman Energy completing wells nearby on adjacent land and having very good success, SPI’s risk has decreased significantly. Given today’s stock price and SPI’s very real assets noted above, SPI has a bright future.