NFG has $2b of net assets in the utility and pipeline/storage segment. If we assume a capital structure with 45% equity ($900m), and 10% allowed ROE, this segment would earn $90m net income (after servicing the interest on approx $1b of debt). A steady 10% ROE would surely warrant a premium, so with a 60% premium, the market value of the utility equity could be some $1.5b ($18/sh).

The California and Gulf properties (a total of 370 BCFe of proved reserves) are fully developed and producing (no hurricanes, please!), so a value of $2/MCF would value these properties at $700m ($8/sh).

If we value the Upper Devonian gas reserves (131 BCF proven reserves, 234 3-P))at $2/MCF, that's $269m (or $3/sh).

As to the Marcellus, time will tell if a well drilled in the Marcellus formation hold reserves of 1,2 or 3 BCF. The various IP numbers and EUR estimates that have been tossed around surely aren't reliable signals to go on. What is known that prices paid for Marcellus acreage are closer to $2000/acre than $1000. So, at $1500/acre, NFG's Marcellus position is probably worth some $1b (or $13-14/sh). But that's probably the lower bound.

The marginal economics of the Marcellus look quite attractive. If the price/MMBTU averages $6.50 over the 2010-2014 period and NFG drills 210 wells (the number planned in the NFG/EOG jv, as per the recent AGA presentation), cost/well is $3.5m (total spending $735m), F&D $1.16/mcfe and EUR is 3.5 bcfe, proved reserve additions would be some 735 BCF. At a conservative price of $2/Mcf, those reserve additions would be worth $1.5b ($18/share), at $3/Mcf some $2.2b ($27/sh).

Adding up,
$18/sh for the utility/pipeline
+ $8 Cal & Gulf E&P properties
+ $3 Devonian Appalachian reserves
+ $13-27 Marcellus reserves

Total NFG valuation $42-56/share.

The current share price of $34 is barely above the values ascribed to all non-Marcellus properties ($29). It's as if NFG's current share price assigns virtually no value to the Marcellus holdings!

So, NFG at $34 looks attractive, almost a screaming bargain.