Stay 100% Long Royale Energy (ROYL): Initial Target Upped to $15-20 Based on Value of Uintah Basin Property...

For new ROYL longs please revisit last week's Wednesday May 28th blog for a complete recap of our bullish position on Royale Energy. For longs that are in with us from last week, well we are sitting pretty here as the stock has made a very significant breakout today on the strongest volume since 2005. While we would normally take profits here after a quick +60% pop from our entry, we are recommending holding all shares and are upping our initial target from $10 to the $15-20 range. We are basing our target on the significant value of their Uintah Basin property in Utah which has not only been validated by Anadarko's estimates of as much as 9 trillion cubic feet of nat gas on their 225,000 acres just south of Royale's, but has also just recently been validated by Whiting Petroleum's (WLL) $365M all cash acquisition of 11,534 net acres in the Uintah Basin from Chicago Energy Associates.

Here is a link to the PR put out by WLL after the close on friday which may explain the breakout in ROYL today:

http://biz.yahoo.com/prnews/080530/laf054.html?.v=98

Based on Whiting's $365M acquisition price which translates to $31,645 per net acre, it puts a value of approximately $475M on Royale's 15,000 net acres which are adjacent to WLL's newly acquired property. Now maybe my math is off, and maybe there is less natural gas in Royale's acreage so let's be ultra conservative and discount the value of Royale's property by 50% to $237.5M. Even after today's significant breakout, Royale's current market cap sits at a mere $65M! Which means anyway you slice it, Royale is extremely undervalued here and leaves room for enormous upside. Hence, based on the possible value of Royale's property, we are upping our initial target to $15-20 thereby giving ROYL a more reasonable yet still undervalued market cap of $118M -158M. Now as we have said before we spoke to the company a week or so ago, and they informed us that we may actually be hearing of the amount of reserves found in their Uintah Basin property this month which they said would be "very exciting news." Once this news arrives it will definitely give us more color on how much to value the property. As of now however, we highly recommend staying completely long ROYL shares till at least $15 as the company sits squarely in the crosshairs of an ongoing bull market in natural gas.