A non-event happened this week: American Standard Energy Corp. (OTCBB: ASEN) terminated its Letter of Intent (LOI) to acquire Cross Border Resources, Inc. (OTCQX: XBOR). Does this really change anything about XBOR’s intrinsic value as a company?
In short, no. Simply put, the termination of the LOI has zero material impact on XBOR’s day-to-day operations. The Company was growing prior to the LOI and continues to grow. Management expects daily production to reach 500 barrels of oil equivalent in early 2012, up from 320 barrels at the end of the third quarter. The Company has $28 million in proved reserves and is strongly positioned to convert probable and possible reserves into producing assets in the year ahead.
It also doesn’t change the fact that XBOR is one of only two pure play public companies providing direct exposure to the Permian Basin. The region accounts for an estimated 20% of U.S. oil production and is in the middle of a massive oil boom driven by advances in drilling technology. As of November 2011, nearly half of all active land rigs in the U.S. were located in the Permian Basin—and Cross Border has a substantial footprint in this prolific region. The Company’s assets include two hot emerging plays (Bone Spring and the Wolfberry trend), as well as more conventional plays such as the Abo, Yeso and San Andres.
The termination of the LOI also has no effect on XBOR’s longstanding relationships with its working interest partners, which include industry heavyweights such as Cimarex (NYSE: XEC), Apache (NYSE: APA), Concho Resources (NYSE: CXO) and Mewbourne. As we’ve previously discussed, non-operators such as XBOR are a low-risk way for investors to play the onshore energy boom. These partnerships give XBOR ready access to rigs and frac crews, positioning the Company to drill more wells in a shorter period of time than its competitors.
These are just a few reasons why XBOR remains a strong oil and gas play and an attractive buyout target, and why RedChip rated XBOR a “Strong Buy” in its initial report on the Company. You can learn more about XBOR by watching our interview with Cross Border’s CEO, Will Gray, from our recent Small-Cap New York Conference.
Disclosure: The subject security is a client of RedChip Companies, Inc. RedChip Companies, Inc., employees and affiliates may have positions and affect transactions in the securities or options of the issuers mentioned herein. For full financial disclosures for all RedChip clients, please visit http://www.redchip.com/disclosures.asp?src=rcv.