Thursday, Credit Suisse initiated coverage of Mariner Energy, Inc. (ME) stock with an Outperform rating and a price target of $16.
Analyst Patel noted that ME is one of the few mid-cap producers offering exposure to deepwater exploration that is otherwise only available through larger E&Ps or Major oils. Exploring since the late 1990s, ME has an established track record (65% success rate) with demonstrated expertise in quickly moving projects from discovery to first production.
The analyst said that unlike many mid-size E&Ps that target absolute production growth, ME focuses on returns while spending within cash flow. ME's organic spending has averaged 90% of internal cash flow over the last three years and for 2009-10, the analyst forecasts ~$160 million of cumulative free cash flow with strong production per share growth of 6% and 12%, respectively.
ME trades at a 6% discount to the analyst's proved (1P) net asset value, or NAV, of $13 versus a 19% group premium. The analyst's $16 risk-weighted NAV includes value for unbooked discoveries to date, representing 69% of ME's total probable reserves (285 Bcfe). The analyst thus sees option value for future exploration successes with the next three tests offering another $1-3/share of NAV upside.
Currently, ME is up $0.28 or 2.30% and trading at $12.48.
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