CIBC values Talisman/Sasol deal at $25,000/acre

CIBC released research today for Progress Energy and calculated the value of the Talisman/Sasol deal at $25,000/acre. They discounted the $1.05 billion value to account for Talisman's sunk costs of approximately $260 million and also for Sasol's future carry commitments over 5 years at 9%/annum. Taking the $25,000/acre value over Canadian Spirit Resources Inc.'s (SPI) 19,200 net Montney acreage in Farrell Creek equals approximately $6.25/share. This does not account for SPI's cash on hand, value of existing infrastructure or any value for their Gething land. This is one more example of an analyst demonstrating that SPI's share price is significantly undervalued.

Dundee says Canadian Spirit is "Significantly Undervalued"

Dundee Securities issued research on Canadian Spirit Resources Inc. (SPI) today titled "Talisman Farrell Creek Joint Venture Provides Valuation Data Point." They state, "given that Canadian Spirit's Farrell Creek Montney play directly offsets Talisman's, we see this transaction as a direct data point and use it to provide investors with a sense of Canadian Spirit's current valuation."

Implied valuation metrics from the Talisman deal applied to SPI result in a per share value of up to $7.44 according to Dundee.

Montney Shale Land Map

This map shows the proximity of Talisman Energy's (TLM) Farrell Creek lands to Canadian Spirit Resources Inc.'s (SPI) land.

TLM's land is shown in purple and SPI's land is directly to the south and is shown in orange. Note that two sections of TLM's land are completely surrounded by SPI land.

RBC says TLM's deal places a firm value on its Montney shale acreage

RBC released research today that stated "Talisman Energy’s $1.05 billion farm-out deal with Sasol Limited places a firm value on its Montney shale acreage at Farrell Creek." Since Canadian Spirit Resources Inc. (SPI) has adjacent Montney shale acreage, that same firm value can be extrapolated to SPI's land. Taking TLM's existing production out of the value, SPI's Montney land is valued at $575 million or $7.67/share using the same valuation metrics.

TD Securities comments on Talisman Farrell Creek deal

TD Securities released a research note today on the Talisman/Sasol deal. They stated that "Farrell Creek is considered largely de-risked." Since TLM's land is adjacent to Canadian Spirit Resources Inc.'s (SPI) land, one can project that at least a portion, if not most of SPI's upper Montney land could be considered de-risked. Should one consider SPI's Farrell Creek land to be similar to TLM's Farrell Creek land, similar valuation metrics place a value of $7.67/share for SPI. Even at a 50% discount, SPI has significant upside potential!

Of additional interest is Sasol's GTL (methane to liquid products) technology. They currently run the largest GTL plant in the world and this could be a viable alternative for North American natural gas.

Talisman announces $1.05 billion joint venture with Sasol for Farrell Creek Montney property

Talisman announced today that it has entered into a joint venture with Sasol. Sasol is paying $1.05 billion for a 50% interest in TLM's Farrell Creek Montney project. TLM's Montney project includes 51,365 acres and is estimated to have 9.6 tcf of gross contingent resources.

This transaction implies a valuation of approximately $0.21/mcf and $0.16/mcf on an adjusted basis taking into account current production according to a research note issued by CIBC. The transaction also equates to $41,000/acre ($26.2 million/section) unadjusted and $30,500/acre ($19.5 million/section) on an adjusted basis.

It is of great interest to note that Canadian Spirit Resources Inc. (SPI) has 29.5 net sections of Montney lands. SPI's west block and east block of Montney lands are both directly adjacent to Talisman's Farrell Creek Montney project. Using TLM/Sasol valuation metrics implies a value of $575 million for SPI's net Montney lands. On a per share basis, SPI's value equals $7.67/share ($575 M / 75 million shares).

As Wellington analyst Kim Page noted back in August, SPI could be "the next Monterey" and "using Monterey take-out valuation metrics points to a potential $8+/share." Both the TLM/Sasol deal and Monterey deal demonstrate that SPI is clearly undervalued!

Could these recent deals mean that there are other parties that are looking into Montney assets in the Farrell Creek area that did not prevail in those negotiations?

SPI announces closing of bought deal

Canadian Spirit Resources Inc. (SPI) announced that it has closed their public offering. As their were bets made by the market that their previous offering would not close, closing of this deal is significant and provides SPI with necessary capital to fund the exploration and development of their Montney shale gas project.

Bloomberg says that natural gas prices may climb in 2011

An aricle published by Bloomberg today stated that natural gas prices will climb in 2011. Natural gas prices may rebound as producers cut output for the first time in six years. The Energy Department said on Dec. 7 that there will be a decline in drilling and output will average 62.01 bcf/d in 2011, down from 62.09 bcf/d this year.

Jonathan Wolff of Credit Suisse Group AG is predicting an average price of $5.25 in 2011. "Production will flatten out in the next several months and then potentially start to decline after that, probably in the second half of the year," he said.

Jason Schenker, president of Prestige Economics, stated "Industrial demand is coming back already, storage withdrawals have been a bit larger than historical numbers even though new supplies are coming to market, which implies that demand is going up."

SPI announces another success in the Lower Montney

Canadian Spirit Resources Inc. (SPI) announced today that they have achieved their second successful test of the Lower Montney Formation. Their b-17 well flowed in excess of 3.5 mmcf/d and stabilized at 2.5 mmcf/d from five fractures over a short horizontal leg. The release states that the well "exceeded the Corporation's expectations and confirms the Corporation's conviction that the lower Montney zones can add significantly to the total productivity and reserve potential of the Montney Formation as a whole".

This is great news and shows that SPI is on their way to proving up their Montney lands.