Pipeline potential value based on GE past comments
I was intrigued with yesterday's telephone conference discussion on the decision to postpone the sale of the EH line and GE's comments about the PL ebitda likely going from $50m a year in 2014 to $125m a year thereafter. I trust the major driver in that increase is the addition of compression with the near doubling of capacity from 200k to 350k a day in throughput. I recalled from a previous conference call that someone asked GE how he arrived at his previous $1b estimate of value and I just went back and replayed the July 9 call near the end when GE answered a question indicating his $1B value estimate was "based on a $50m ebitda with a 20-25 multiple."
I don't know if the 20 to 25 multiple is a fair expectation or not. Perhaps some other posters have more info on area pipeline sales and can opine on that potential. But, if you assume GE is puffing on both fronts and discount the multiple and ebitda estimate by 20% each, the math would work out as 16x $100m or $1.6B in value with MHRs interest going from 600m to $960m simply based on delaying the sale for 1 year. Obviously, if either or both of the multiple and ebitda numbers are higher, then MHRs proceeds go up big time with a 20x $125m ebitda value equal to $2.5B with $1.5B going to MHR. Either way, the decision to hold off appears to be a no-brainer financially and having the "decisional control" over where the pipeline goes over the interim year is simply icing on the cake. Lex
I agree with you. After having the right of way and laying the pipe, compression is a small investment yet it will almost double throughput. Also Eureka being capitalized entirely on equity it has the capacity to leverage this growth project. I wouldn't think MHR has to funnel much if any cash into this, and the fair value increases 50%, it's too much to leave on the table.
Fastball, Gary has said on many occasions that that the growth of the pipeline is unlimited. I always wondered if he plans to lay even more pipelines in their right of way, or just extend their existing pipeline out to new production areas. Laying more pipe in the r-o-w, would be extremely expensive but financially rewarding in the future for investors of MHR stock. GLTALs
Yes, Lex. Those are very real numbers. Pretty exciting and interesting how all these positives are finally coming out over a short period of time. And if you're a short, well, it's lights out! I was kinda thinking that $8.50 number might be a plateau point because of all the shareholder options happening then, but I am now thinking the short covering factor could well propel us past that mark without even blinking. Time will tell.