I try to document all of my activity by reporting my "motivation" for my trades. I'd traded MHR prev. & I'd planned to acquire shares again, in a series of small "tranches." I bought the first tranche at 3 min. before this past Tuesday's close. I recorded this report in my trading Journal: "The co's on a calendar yr reporting schedule. Their Q4-12 & their 2012 full-yr rprts will be delayed to June or even to July of 2013 due to the effects of an apparent accounting DISASTER which the co. only reported MINUTES after my 3:57 PM purchase of MHR#3A on 4-16-13, Tuesday. The company reported after the close that day that it had dismissed Price Waterhouse Cooper, which it had retained in 7-12 as its ind. auditor. The co submitted an 11-page SEC 8K which reads like an endless "confessional." They list one accounting failure after another. I've had no prior experience of this type of detail but I suspect this is highly unusual. I'd been favorably impressed by what I'd seen of the company's work in WV when I investigated last Thursday's compression-station pigging fire. I've tried to read the 8K filing about the accounting problems. It's boggling my mind. I think the co's mgt of this situation looks farcical & that suggests to me that the competence of the top mgt is HIGHLY questionable. This is the antithesis of my tentative assessment of only 2 days ago & I'm bewildered. For the moment I'll continue to pore over the seemingly-inane logorrhea of the company's 'Elmer Fudd' 'accounting confession.' I'm only continuing my preliminary reading & glossing of this text. I'm also poring over transcripts of recent CCs. I continue to think this co is a highly-competent O&G operation. I don't expect to find that this assessment is incorrect, but I can't rule that possibility out now. My impression of the judgment and competence of the company's overall business management couldn't be worse. I'm incredulous." How can the Gen Counsel and CFO remain employed?!
Jeffrey - The first comment I have is the CEO has issues. Gary has problems and a long history of them. He is interested in producing oil and NG and lots of it. He often has said things like with MWE not having its plant ready for MHR gas and then it came out the MHR did not have the permits. He is excellent at blaming others.
As to the accounting issues. When companies are run by "oil guys" there is a long history of issues. Two that come to memory are MWE failing to file for similar reasons in about 2005, APL having accounting isses in 2002 or 2003, PAA having found illegal trading in oil in 2000 and the list goes on. The good news is the problems are indeed non cash ones and the BOD at this point is on it. BDO is competent and can handle getting things up to par and MHR now probably has the staff to learn and go forward.
EXCELLENT contribution! THANK YOU! Evans had impressed me favorably, but this entire FIASCO has rattled me. I owned this stock in 2010 and I remember listening to one of their CCs then. Evans discussed their first experimentation with horizontal drilling and hydraulic fracturing in the Eagle Ford on their original acreage, which it seems they're now selling for c. $401M. (Did Evans say recently that they'd paid $15M for those leases?) I was favorably impressed in the past by their informative reports of their operations. They've continued to release detailed operational updates. I particularly admired the progress they made from their initial uses of fracking to the present. (WHY do they spell that word as "fracing"?) The "oil guys" seemed to be MOVING, but I guess I've got a lot to learn about O&G. THANKS for your insights!
They are over capitalized, cash flow and proved reserves are only estimates, and you know what happens to estimates and errors or reversals in accounting policies - they retract like the stock, only to find that really there was water beneath all those reserves. If you tried to confirm the performance and look at it from a technical review - it does not make sense.
I'm looking at the "Corporate Presentations, Conference Calls and Interviews" page at their own Website. (I admit my ignorance, by the way, but the caption of yesterday's CC: "Change in Auditors Conference Call," seems ridiculous to me! It's as if they're saying, "Don't listen to the rumors that will tell you we screwed up so egregiously that we dumped our auditors, hired new auditors, & delayed our 10K by 6 mos! Listen to this 'OFFICIAL Accounting Screw-Up Conference Call' & get the info directly from us! We WALLOW in our own manifold errors, & you won't be disappointed!") I don't see that they offer a transcript of that call. (The quality of their own transcripts isn't so "hot." Can't they simply circulate printed or digital copies among the participants & ask those participants to proofread the texts? I see absurd transcription errors.) In yesterday's call Evans stressed that their reserves had been definitively confirmed by meticulous "engineering" which was done by a 3rd-party svc co which Evans said was well regarded in its field, & highly competent. Are you questioning MHR's O&G reserves when you say "there was water beneath all those reserves"? I assumed the co's Gen Counsel "put them up" to the unbelievable "performance" of this accounting "confession." I question his judgment & the judgment of the rest of the co's top mgt with respect to their overall decisions, apart from the technical O&G details. (I'm unable to understand how the CFO is still there. It looks like they're saying their accounting problems can be explained easily if observers understand that MHR excavated new depths of accounting incompetence. Once that's understood, then it's easy to understand why they hired new personnel, delayed their reports, etc. "OK," but how do they excuse those mind-boggling failures?!) They look like "The Keystone Kops" to me in terms of overall business mgt, but I'd thought they were world-class O&G people. Was I wrong about that?