I’ve always wanted to be an energy tycoon. Problem is, at this point in my life, I don’t have the capital to make it happen. But, thanks to the stock market, I can come pretty close by owning stocks of oil exploration companies. But best of all, I think I’ve come across a way to own oil field assets potentially worth more than $88 million and pay absolutely NOTHING for them.

That is exactly the case with Equal Energy (NYSE: EQU) and why I think the company is a compelling investment. This Canadian oil company owns roughly 20,000 acres in the Mississippian shale, a major new shale oil discovery. (Nathan Slaughter, StreetAuthority’s resident energy expert, is a big fan of shale, and so am I.)

An oil field competitor recently paid $50 million, or more than $4,400 an acre, to acquire drilling rights in the Mississippi shale, a region covering 6.5 million acres across northern Oklahoma and southern Kansas. But Equal Energy’s holdings in the Mississippian shale are valued at exactly ZERO on its balance sheet. But if Equal’s acreage contains large amounts of oil – which is likely, given 90%-plus drilling success rates of competitors at adjacent sites, then the company’s acreage may also be worth a similar amount. At 20,000 acres, that’s a value exceeding $88 million, which is nearly half of Equal’s entire $178 million value on the stock market.

Drilling in the Mississippi shale commenced just four years ago, and as I mentioned earlier, drilling success rates have been phenomenal. Several of the major independents, including Chesapeake (NYSE: CHK), Range Resources (NYSE: RRC), Sandridge Energy (NYSE: SD) and Devon Energy (NYSE: DVN) are aggressively buying up land in the area, which has caused prices to soar from $200 an acre just two years ago to more than $4,400 an acre today. Experts say the high prices are justified by the area’s shallow reservoirs,  low drilling costs and extensive existing infrastructure.

Equal has a hugely undervalued asset in its Mississippian shale lands, but the company has other attractions as well, such as steadily increasing production and reserves from other core holdings, which include the Hunton field in Oklahoma. Equal owns 10,000 acres of the Hunton field and has only recently begun to develop the area. Although not as well-known as bigger shale oil plays such as Barnett and Haynesville, Hunton production is highly profitable because the formations are naturally fractured, which eliminates the need for expensive hydraulic fracturing.

Equal estimates its proven and probable reserves associated with Hunton and two other core properties exceed 40 million barrels. The company’s current production mix is half oil and half natural gas and natural gas liquids (NGLs). If you assume a 50/50 mix for the reserves, then it suggests Equal’s reserves are worth at least $1.6 billion at today’s prices. 

Part of the reason why Equal’s Mississippi shale property is valued for nothing is because the company was formerly known as Enterra Energy and has fallen under the radar of most investors. The company used to be a high-yielding Canadian Energy Trust, but converted into a corporation last year. Income investors abandoned the stock in droves as a result. But the new corporate structure will allow Equal to use cash flow to grow production and reserves. The company has already begun reaping the benefits.

During this year’s September quarter, which was the first full quarter of production from Hunton, Equal’s total production volume rose to 11,263 barrels per day, which was 19% higher than June quarter production of 9,467 barrels and 28% higher than one year ago when production averaged 8,777 barrels.

As a result, Equal’s revenue rose 11% during the first nine months of 2011 to $121.4 million, compared with $109 million during the same period last year. Funds from operations jumped 22% to $45.6 million, and nine-month earnings were $0.5 million, or $0.02 per share, compared with net losses of $14.1 million, or $0.17 per share, a year earlier.

Equal targets funds from operations exceeding $65 million in 2012 and plans to use all of its cash flow for exploration and development. The company’s business strategy, which focuses on acquiring very low-risk drilling prospects, has so far yielded 90%-plus drilling success rates. Equal plans to drill its first Mississippian shale wells in 2012.

Only a few investors are aware that Equal has Mississippian shale exposure, and the big sell-off by income investors last year led to a steep decline in Equal’s valuation that had nothing to do with the company’s business prospects or intrinsic value. Equal shares are still trading at less than 75% of book value, while similarly-sized oil companies trade near 180% of book value. This is truly one of those rare opportunities where Wall Street offers a sweetheart deal to investors who know about it.

Risks to consider: Experts say Equal’s Mississippian shale acreage may yield significant oil, but the company won’t have reserve estimates for this find until exploration drilling is completed next year. In addition, because Equal is a small-cap stock, its shares tend to be more volatile than those of larger, more established names companies. 

Action to take–> Equal is already attractive based on its discounted valuation, stable producing assets and improving balance sheet and cash flow. I think it’s a buy with major upside for investors with a moderate appetite for risk — and that’s not counting the Mississippi shale. The upside potential those assets are an added bonus investors get for free.