before going to my revenue estimates that I have revised, allow me please to natter about how MMR hedges its natural gas and oil revenues. Actually per the 10-K they do NOT hedge their gas and oil sales in a strict accounting sense; this means that they enter into swaps where they are the sellers of forward contracts priced for natural gas at say $8.60 per thousand cubic feet (bear with me, this may take two posts) and I assume these contracts expire monthly for January through June, then November through December for forward sales and the puts they have are for the months of July through October. So that means in terms of revenue and expense estimates, we take the production for the first quarter and apply market prices to get revenues, then for expenses we deduct (if they had mark to market losses and they did because gas was well above $8.60 for this quarter) losses on forward sales. Okay that is my preface to my revenue estimates, my second post will detail where I think revenues and expenses will be. It ain't just weed, the reefer
now for the numbers, if I am right on revenue of $315 million, mark to market losses on the swaps of $55 million, I get net revenues after adjustments of $260 million. I expect production and delivery costs to be roughly $50 million and general and administrative to follow last quarter at around $10 million leaving us ebitda of $200 million. I am taking depletion as a percentage of past revenue, in the fourth quarter it was $128 million on revenues of $247 million so that is about 52% and applying that to $315 million, I get depletion of $163 million (a NON-CASH CHARGE!) or earnings before interest expense of $37 million. Oh I need to reduce that for exploration expenses, sorry, take another $7 million off and I get $30 million. I expect that the huge cash flow will pay down the bank facility in large measure, it was at $274 million at y/e 2007 and interest rates are down too, so interest expense drops from $32 million down to say $20 million and I get $10 million in earnings. Comments please folks, it ain't just weed, the reefer
For the first quarter, per the 10-K, they are producing at 280 MMcfe/d for the two month period ended February 29, 2008, higher than initially forecast. I am assuming oil production did not decline so I take 1,248,000 barrels of oil and attach a $100 price to it to get oil revenues of $124,800,000 in Q1. Now natural gas production I assume is down to 18 bcf of gas and I put that revenue from this production estimate at $170 million (about $9.40 for natural gas on average). Adding the two, I get revenues of $315 million. Now per the 10-K (Note 7 to the financials) they have hedged 16.4 bcf for a period of 8 months and if that is evenly distributed (I doubt it but I have no real expertise as to how it may be distributed) that means hedges of 2 billion a month or 6 billion a quarter. Losses on this could be about the difference between $8.60 and $9.40 or 80 cents or $20 million. Oil is 'hedged" at $$73.50 for 693,000 barrels of oil so assuming 8 months, they have 259,875 barrels hedged at a loss of $26.50 a barrel or almost $7 million. But I am off on this as they show mark to market losses of $37 million for the first two months of this year per the 10-K so let me adjust and estimate losses of $55 million for this quarter. I will post one more time with specific numbers, it ain't just weed, the reefer
"For the first quarter, per the 10-K, they are producing at 280 MMcfe/d for the two month period ended February 29, 2008, higher than initially forecast."
That's great news!
I really appreciate your analysis. Your top line revenue estimate is pretty close to your original estimate. Looks like cash flow will be good. I may have missed it, but did you include dividend payments for the preferred stock?