http://www.businessinsider.com/look-for-high-growth-oil-and-gas-juniors-josh-young-2012-6

From this article:

Unlike most oil and gas stocks, Gale Force is up for the year. It is well financed, growing rapidly and trading at a discount to the value of its cash flow and reserves. Gale Force recently announced production guidance in excess of 800 barrels per day (bbl/d) by the end of the year versus 275 bbl/d at the start of the year. It is possible that the company could get to 1 thousand barrels per day (Mbbl/d) by the end of the year. With a current enterprise value of around $20 million ($20M), it is undervalued relative to its peers and relative to the liquidation value of its assets. Gale Force is in the process of drilling to prove undeveloped locations and recompleting three producing wells. Production could exceed 600 bbl/d by the beginning of August. These projects have a very high rate of return—a triple-digit internal rate of return in many cases. It should create a lot of value over the next year or so through this capital program. Over time, the equity price will begin to reflect that. If Gale Force traded to a normal industry multiple of $100,000 (100K)/flowing barrel, with 1,000 bbl/d production by the end of the year, that could make for a $100M market cap versus the current $20M market cap. There is a lot of potential upside.

TER: Does this multiple apply to junior producers or is that more for mid-tiers and majors?

JY: That's a great question. It's not really still applicable for really small companies, but what Gale Force is doing will make it very applicable. Gale Force has been looking at royalty trusts that have been spun off by companies like SandRidge Energy (SD:NYSE), Chesapeake Energy Corp. (CHK:NYSE) and the management of BreitBurn Energy Partners L.P. (BBEP:NASDAQ). Once production exceeds 1,000 bbl/d, Gale Force will stabilize production with continuous drilling and workover programs. Those assets are being evaluated for spinning out to a royalty trust. The valuations on royalty trusts are well in excess of $100K/flowing barrel. Even now, after a few months of weakness in energy stocks, most of the royalty trusts are trading in excess of $250K/flowing barrel. There's a capital expenditure requirement, but even netting the capex requirement, 1,000 bbl/d of stabilized production could be worth more than $200M. In general, a $100K/flowing barrel metric is more appropriate for a larger company, Gale Force does have a near-term monetization plan. I think the $100K is fair. As a potential royalty trust offering becomes more of a reality, the stock could price it in.

TER: Have other small companies successfully spun off or converted into a royalty trust?

JY: Absolutely. Recently, the management that runs BreitBurn Energy had a private company that was smaller and grew over the last few years. They spun it out as Pacific Coast Oil Trust (ROYT:NYSE). The initial valuation was about $300K/flowing barrel. Production was approximately 3,000 bbl/d. Gale Force produces less but is higher margin. I don't think there's necessarily a size requirement beyond the 1,000 bbl/d Gale Force will achieve. A spinoff needs to be a certain size for investors to want to participate and for liquidity, but I don't think it should matter too much if it's 1,000 or 50,000 bbl/d as long as the yield is similar and the cash flow per unit is similar.