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http://www.theage.com.au/business/sense-and-dollars-hold-sway-in-market-madness-20110928-1kw2m.html

Gassing up Metgasco

Ivor Ries at Baillieu’s has crunched the numbers on what the revised $574 million bid by the Shell/PetroChina joint venture for Queensland coal seam gas (CSG) developer Bow Energy might mean for NSW CSG developer Metgasco.

Interesting stuff too given the implied valuation of Bow’s gas reserves in the bid of $2.41 a gigajoule of 2P reserves (proven and probable) and 20.9 cents a gigajoule on 3P reserves (proven, probable and possible) translates in to a ‘’look through valuation’’ for Metgasco of $2.99 a share (2P) or $1.53 a share at the 3P level.

If you are confused by all that it is probably easier to focus on the 65 cents a share price target that Ries set for Metgasco. That compares with its closing price yesterday of 32.5 cents a share which, by the way, was up 4 cents on the day.

Ries is confident that there will be further consolidation in the CSG sector as the Queensland gas export projects scramble to secure the resource base to support project expansions. Mind you, none of these projects have been built yet.

The point here is that if the projects don’t end up being bigger than planned, they could be facing sub 10 per cent returns. Not worth the bother, what with the farmers and greenies going in to over drive after watching their borrowed copies of the US documentary Gasland.

Read more: http://www.theage.com.au/business/sense-and-dollars-hold-sway-in-market-madness-20110928-1kw2m.html#ixzz1ZCOuQuPy