CKCC Research Desk Initiates Coverage of AREX with Buy Rating and $30 Price Target

Oxford, MS 9/9/2011 (PennyPayDay) – CKCC Research Desk initiated coverage of Approach Resources (Nasdaq:AREX) yesterday with a BUY rating and a price target of $30.00 per share. Highlights include:

· AREX is a Fort Worth, Texas-based E&P with operations focused principally in the Permian Basin in West Texas. As of June 30, 2011, the company had reserves of 66.8 mmboe, which were comprised of 15% oil, 40% NGLs, and 45% natural gas. In addition, the company’s reserves are evenly split between PDP and PUDs. AREX’s focus has principally been on the Canyon Sands, Strawn, and Ellenburger zones, which range in depth from approximately 7,000 to 9,000 feet.

· At current valuation, shares of AREX trade at a 3% discount to our proved-only NAV of $20.20 per share, based on our long-term base-case assumption of $90/bbl for oil and $4.75/mcf for natural gas. In addition, given the company’s significant exposure to NGLs (40% of reserves), we are assuming average NGL pricing per bbl of 50% of WTI.

· In addition to their proved reserves, AREX is optimistic about their emerging Wolffork Shale play in which the company currently estimates they have 400 mmboe of potential upside from almost 3,000 locations. Management has initially estimated that these potential upside reserves consist of approximately 75% oil and NGLs. AREX currently has approximately 140,000 net acres in the play, and controls a 100% WI on most of the acreage. Recent transactions in the Wolffork by Conoco Phillips and Petrohawk (recently acquired by BHP Billiton) were made north of $3,000/acre.

· With more than 140,000 net acres potentially prospective for the emerging Wolffork Shale, and recent transactions by the likes of Conoco Phillips and Petrohawk (acquired by BHP Billiton) north of $3,000 per acre, we estimate that shares of AREX could be worth $30.00 per share assuming a more modest $2,500/acre. And with a drilling inventory of almost 3,000 net locations to accompany its large, contiguous acreage, it is not a stretch to think a larger E&P or Integrated further up the food chain could find AREX’s position appealing.

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