Value creation in the E&P sector means being disciplined with capital. Many companies grow by issuing shares. Millions and millions of shares as they acquire acreage, prove it up and then raise capital to drill it like crazy.
Others choose to build value by drilling within cash flow and build it over time.
I prefer what MHR is doing, drill it themselves, and build real value.
Big Builder, very good explanation of how to equate the value of issuing common stock in the acquisition of a target. But I would like to point out that the term "Dilution" would still apply as our percentage of current assets would be diluted with any issuance. Now the purchase would have it's own assets and those assets would be shared amongst both old & new shareholders.
So the question comes down to was the purchase of new assets and dilution of current assets accreditive to shareholders in the short or long term view of the market? From this question you will be able to gauge the markets reaction.
Now this does bring up personal investment thesis as possibly you believed there was more upside to Eagle Ford or Marcellus then Hokenpoke or where-ever, or possibly you were looking for more diversification and they simply upped their acreage and reliance in a single area or vice-versa. So there will be many questions for both the market and individual investors ask themselves once details are public and the deal(s) is(are) done.
But as you and others have stated right now we are at the mercy of Gary Evans and his team of people, I believe those are good hands to be in as they share our motivation in regards to share price. But don't forget there is a necessity to get the move on, as Gary has built a very extensive and at this point in production a very expensive team, so time will be a lag on share price if nothing comes up in the near future.
if you like the co hold both as you do( i have both).there is gonna be less dilution because of the preferreds because they will raise some of the money from them and they obviously dont dilute the common.
Correct me if I am wrong, but it seems to me that the concept of "dilution" implys that existing share holders are worse off rather than that there are more shares. If the newly issued shares are exchanged for valuable assets that are worth more than the inherent value of the shares prior to the new issuance, then there is no "dilution".
For example, IF one assumes and "inherent" value of $8 per share now (based perhaps on break up value) and the newly acquired assets add value in excess of $8 per share issued, then the issuance of the new shares has not diluted existing shares.
I admit that judging inherent value is an art based on complex assumptions. In essence, we depend on Gary Evans and team to do just that. They own so much stock themselves, their interests are in accord with ours and I trust them to use newly issued shares with skill and prudence. That said, risk is always present...I just think the risk is worth it.
Am I making this too complex, or is there anything of value in looking at things this way?
Those who are holding common stock are betting it will appreciate at something greater than 10.25%....those who hols the preferred are satisfied with 10.25%. Depends totally on your own risk profile. Hard to bet on one vs the other....your own tolerance for risk will steer you in one direction or the other.
Hey Saline, perhaps I didn't make myself clear. ...or you mis-interpreted what I was saying. I really take no issue with your choosing the preferred...not a bad idea at all. I have a friend who's also in the preferred because he chooses to run with a little less risk. With each post you further explain what you are going...not apparent with that initial post. Thanks for clarifying.
You are right. I understand that. Correct me if I am wrong, but I thought MHR was getting money from the preferred stock. Normally when they dilute they want money. I thought MHRpC would help out. If I am wrong, I apoligize for my lack of knowledge.