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?
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