Approach Resources – Oil Inventory Upside

English: Pumpjack east of Andrews, TX

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Approach Resources Inc. |

AREX : NASDAQ : US$35.44  Buy , Target US$45.00 

Wolfcamp progression reveals AREX’s oily resource upside

Recommendation

 BUY rating  based on Approach’s strong project updates and 2011 financial results. ApproachResources remains one of our best ideas based on its liquids transformation shift and industry-leading leverage to the horizontal oil concepts in the Permian Basin.

Approach successfully de-risked a meaningful amount of resource from its 2011 testing activities, and we expect further NAV/share price accretion as the markets dial in the stacked potential/inventory upside from AREX’s liquids-rich asset base.

Highlights

Approach Resources reported better than consensus Q4/11 financial results and provided a very encouraging operations update. The key highlights included strong results from AREX’s vertical Wolffork program and potential inventory upside from the down spacing and multiple stacked Wolfcamp horizontal targets. 

With the vertical program in development mode, the latest results reveal theuplift from applying a similar completion methodology to AREX’s horizontal program. The recent Wolffork results (~140 boepd) and recompletion efforts set the stage for a positive type curve revision by year-end.

These positive revisions may translate into an incremental $2.50/sh of upside to NAV.

AREX’s horizontal down spacing and stacked lateral potential point to a level of inventory beyond the current Wolfcamp assessment. We are  focused on industry delineation activity in the Wolfcamp “A”&”C” benches and upcoming horizontal tests (Pangea West/Central), which  may offer incremental resource upside. 

Liquidity

At present, Approach has ~$44 million outstanding on its borrowing base of ~$260 million. This provides for a total liquidity picture of ~$216 million.Approach has a fully funded 2012 capital budget and should only outspend discretionary cash flow by ~$125 million.

Valuation

Approach Resources is a mature company with multiple years of positive earnings and cash flow behind it. We value the company on a combination of cash flow, net asset value and option value. Our current 12-month price target of $45.00 is based on our break-up value estimate of $44.01 per share and is equivalent to 6.1x our ‘13 EBITDAX estimate of $222 million.

What’s In Your Library ? 

Rule No.1  First Invest In Yourself

Rule No. 2 You Can’t Profit From Books You Don’t Read                              

This review is for: Apprentice Millionaire Portfolio 2012 http://amp2012.com/2012/03/10/

The first edition of Stock Market Magic: Building Your Apprentice Millionaire Portfolio authored by Jack A. Bass, was published in March 2012. This review is based upon reading that edition and the author’s stock market letter at http://www.amp2012.com

This comprehensive volume (some 500 pages ) offers the reader the nuts and bolts as to what the Apprentice Millionaire Portfolio strategy is based upon – investing , trading and selection.

While many investors today talk about an ” investing” style, I challenge how many have actually developed their own criteria – here in this 500 page volume is a written system and series of selections. Many of the basics have stood the test of time. The volume also allows for junior companies to be considered with the ” blue chips” of each sector. More than 150 companies are profiled.

The books offers Watchlists of stock selections in a variety of sectors such as energy and precious metals. This will allow the reader to create a portfolio in line with the AMP process and thinking. In that way a great deal of hard work has already been done.

It should be noted that the book contains information on how to analyze a wide variety of stocks. Actually a great proportion of the book is devoted to giving the investor the basic thesis of why an industry such as energy was chosen and why particular stocks are the top picks for each industry or sector analysis. Information is in a clear and readable format.

Different from Graham and Dodd’s disdain for “speculators,” or what we might call “traders” the author gives actual trades to back up the assertion that not every selection has to be made until ” death do you part “.

Stock Market Magic : Building Your Apprentice Millionaire Portfolio is a “must have” book for any serious investor’s library.

The E-book Apprentice Millionaire Portfolio is available on amazon.com

For the print edition  AVAILABLE NOW   – 500 pages soft cover

 Stock Market Magic: Building Your Apprentice Millionaire Portfolio 2012 

Send  your check or money order for $ 28.75 payable to Jack A. Bass  to:

 

Jack A. Bass

92-6887 Sheffield Way

Chilliwack, British Columbia

Canada V2R 5V5

Please Allow  3-4 weeks for delivery

 

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