The market’s summer doldrums are with us so we shouldn’t read too much on how the market reacts considering its usual decrease in share volumes traded, but I can’t help myself by ignoring it. Since the 2-qtr conference call I see that the ‘Analyst Estimates’ of EPS for the upcoming 3-qtr has dropped to $.43, down by $.09 from its 90 days ago high of $.52 EPS. The market has not been able to attain the late April PPS highs regardless of what I perceive were several positive announcements, i.e. Danny II, the Transocean drill ship acquisition, deciding to add a Q+ to their fleet, etc. etc.
Going back to our O&G discussions of last week, I was unable to locate some old records on the Phoenix acquisition and some early production records the prior owner experienced. Mat Simmons had provided the info in one of his seminars before he passed away. As best as I can recall, the last full year’s production was reported as 26,000 bbl/day in 2004. And from Jan. to Aug. 2005, before the hurricane destroyed the platform, he reported the lease produced 16,000 bbl/day (or est. 24,000 bbl/day annualized). Remember this is not written in stone, just my recall of a subject I posted on frequently in the past. Also, I have no knowledge if HLX has restored all of the old producing wells, I don’t think so. The last couple of years since production has restarted the renewed production are considerably lower than the 2004 -2005 prod/ rates mentioned above. The fact that HLX has interest in drilling again in the Phoenix field is a good indication to me that there still plenty goodies out there. Is there more than the expected 3,000 bbl/day mentioned in the CC; has the field been fully defined? I just don’t know; it’s a lot of babbling off the top of an old man’s head.
Another factor that has affected the reported profitability of O&G E&P over the past 4 years has been the large ‘Impairments’ write-off/adjustments from 2008 thru 2011. In one of my spreadsheets I maintain I show a total of $1.149 billion applied against Gross Profit, with 2008’s $715 million representing about 62% of the total. It is what it is, but that was a huge nut to swallow after the 2008 financial meltdown and with all the gyrations since then has made the O&G profitability hard to follow.
Well, hopefully good things are ahead for us longs, regardless of the market.
Employee constraints are not like asset constraints and don't take much to address...some argue that skilled labor or a dearth of labor in this particular field would be major hindrances...However, the well ops business is not the size of Delaware but rather the size of Alaska and They must decide if they want to be in the big leagues or stay in AAA... I would use my E&P assets as my ante in the big game with oil majors for the well ops piece that they want to acquire...An asset swap if you will...I'm really wondering if the challenge isn't more than employee related...and why Owen has been very quiet on the open mkt stock purchasing front...wanting to own 10% of a company and a profitable one I might add yet not doing it tells me something else is brewing.....
Makes sense & thks for laying out the counter.
Its a campaign year & the campaign slogan for HLX management should be: "Its a "PUBLIC" company stupid!"...or maybe "Viva the Shareholder"...sorry, its Friday..
Ref. your last comment about the "employee perspective" - triggered something I heard in the cc but slipped my mind. Went back and read the transcript to get the context of the comment. Part of Kratz's reply when asked about the potential for pursuing other acquisitions like the Discoverer:
"And we also are pretty maxed out on the human resources that we have for initiating growth. So we’re moving about as aggressively as we can."
Thats a real thought twister...it begs the question - in times like this, how can "human" resources be a barrier to growth for a company like HLX? Geez, when I think of the possible reasons, both inside and outside of the industry, it kind of makes my stomach turn...
thank you for your thoughts...The stock multiple really has very little to do with what value E&P eventually gets...Think about that....If they sell E&P for "X" then it's because the buyer can generate cash flow and eps well above cost of capital...Buyers obviously want to buy on the cheap...Sellers want the opposite as you know..so if the E&P division receives an offer for 50% of what "the company" thinks it's worth, the proceeds would be immediately reinvested in the well intervention side of the business except for the remaining debt that has to be paid off...That being said, they could easily enter into contracts for well intervention work on a much larger and more aggressive scale...not to mention have all the flexibility in the world balance sheet wise...But the question mgmt continues to ask itself is shouldn't we get more for the division?? Well to me the answer is simple...If you can lease well ops equipment TODAY and generate ebitda in the process, then it's simply a mathematics equation...so the company is sitting there doing a cash flow generation calculation on E&P and comparing it to well ops gross margin...I believe they continue to favor cash flow vs an outright sale and this is obviously the case since the company hasn't sold it yet.....If oil goes to $125, do you think they can get a better price for the division? What I didn't say was whether the company is prepared from an employee perspective to get real aggressive immediately regarding well-ops...I hope this makes some sense and if not let me know......
But if the goal of management is to sell the E&P, doesn't this conservative track & its corresponding impact (maybe drag) on share price, make that look a little easier & sweeter to the potential buyers? If they start pounding the drums up and down WS, and the big guys start moving in and pushing the multiple -then the math could get tougher for the sale.
Not saying I agree with this approach, just answering your question with another possible reason.
Great discussion from you guys...
I appreciate your attempt very much at proving up Oil and Gas specifically where Phoenix is concerned...Since most of your historical knowledge pre-dates me, I can only look at what the company has done over the last several years balance sheet wise to protect the cash flow from taxes thru impairments,write-downs and other accounting moves etc... Given the company is moving an aircraft carrier into the wind so to speak to prepare for launch and is taking a while to do so, the Oil/Gas division isn't the priority as we've discussed. Thus, I don't really think it matters too much how much oil is really left sub-sea. I'm NOT saying it's not important as to value but it is basically the leverage to well ops plain and simple... Your detail is commendable or attempt to provide knowledge to us that we didn't really know and I really appreciate it...I believe they will milk E&P until it is dry and only develop enough to contribute cash to the company equation...They spoke of reducing capex on E&P in '13...To me that says building more cash and seeing a flip in the weighting of service vs. e&p from an ebitdax perspective...this alone should push the multiple on the stock into the low teens from 8-9...Add reduced interest cost and you are looking at a mid 20's price... Specifically referring to your thoughts on Phoenix, they do have a chance to surprise us but I believe outside of Wang, they will focus on workovers and nothing more.....Once they can steady E&P and stem the natural decline, the faster the maturity of this company will occur...Until then, we can only relax on the front porch and drink lemonade or the beverage of your choice..I wish I had more detail to give you. I appreciate all the detail you give me
Talk about the summer doldrums, we have a hard time maintaining 600,000 daily sales volume. At noon today, how about only 332,000 traded and that was with one 95,000 hit earlier in the a.m. Well, IMHO things should change during or after 3-qtr. The analysis estimate of $0.41 EPS should be easy to beat if hurricanes keep out of the GOM.
First, let me say that I’m almost never 100% one way or the other about anything, and my feelings regarding Helix’s duel Oilfield Services and O&G model is no different. However, as you can see, I’m more like 75% for the current model than a more pure Oilfield Services play. Looking at a spreadsheet I have maintain, for the past 9 years, the Gross Profit contributions of 60% - 40% favors Oilfield Services (ignoring impairments/ write-off and the 2008 financial meltdown in both segments). Of course this period covers so many factors like management changes, investing decisions, economic conditions, acquisitions, divestments, etc., etc. that I’m not exactly sure what it says except from year to year one or the other sector came to the rescue or in a combination had produce a banner year, and to me that’s good.
Here are several things that influence my opinion: (1) The fact that many of the in-house personnel of both group help each others’ management and operational staff get a better prospective of what a job entails. (2) I have also seen HLX’s reputation and expertise expand since the O&G segment has been added, particularly in the well enhancement (down hole) area which was nonexistent pre O&G operations. How well ‘Well Services’ would do without the current O&G staff? Sure, you could hire the staff but Contracting Services would have to support it without the O&G revenue. (3) Yes, E&P is a high risk business, particularly in deepwater, even for the big boys and more so for independents. Helix (the old CDIS) started with only producing existing and older proven leases from 1992 to 2005. From the latter half of 2005 through 2007 the old HLX management group, in my opinion, (Mr. Kratz had became more inactive during this period), moved into a more E&P mode with the acquisition of Murphy Oil and Remington Oil E&P operations and personnel. In their defense Crude prices were soaring from $60 to $90 bbl. During that period; however, earlier E&P ventures were more negative than positive and several hurricanes turned the whole industry’s interest into a more repair and maintenance mode than E&P.
I could on and on, but I have to resist my usual self by being too long-winded. Oh, one more thing, in my last post I inadvertently made a last minute change without putting my thinking cap on. I had posted the ‘Phoenix’ 2005 lease crude production rate as 16,000 bbl/day. I then erroneously annualized it to 24,000 bbl/day because the hurricanes had destroyed its platform after only 8 mos. production. What was I think of, ‘bbl/day’ are just that ‘bbl/day’, period.