This is a flat out joke. Something fishy is going on I bet so people can load up on the cheap. Plus mgmt. does everything in their power to make this company look inept. Please XCO give us 1.50 a share and I will glady accept.
Finco, you are an idiot. Some of Denbury's acreage is right in the 10 BCF well area.
Look at the most recent 10-K and tell me what the proven reserves are for QBC? It is 29 BCF. If you are going to prove QBC's, then you should prove Denbury's, too. Finco, you are truly an idiot.
Again, my valuation is on PROVEN. The Danbury acreage is unproven, not in the same fields, and some is in another state.
Denbury Resources (DNR) has 16,402 net acres that is prospective for the Haynesville Shale in Louisiana and Texas.
Denbury Resources has 3,141 net acres located in the Stockman field in Texas. The acreage in Louisiana is split between 4 fields as follows:
Greenwood Waskom – 4,971 net acres
Elm Grove – 2,084 net acres
Caspiana – 5,902 net acres
Kingston – 304 net acres
Denbury sells 16,000 + net HS acres for only $ 217 mil.
Denbury has acreage in the sweet spot. Denbury has acreage very near QBC.
Teh bottom line is Denbury sold substantially more acreage for substantially less than Finco's valuation.
CPB...Like I said, both of you had some good points, so I had no intention of criticizing or discrediting either of you. I get what you mean about taking on the challenge, but I also think Finco has made some posts in the past that indicate that he does understand the difference in the various catagories of reserve classifications. You want to be more specific about the calculation, Finco wants to generalize and compare that to where the stock is at the moment. He sees upside, what do you see?
The IRR I referred to was another company's number, but it related to the investment decision on a typical well not the overall company. QBC's investment economics in the HS are similar, except they have a higher NRI, ie more net revenues coming into QBC off the leases. I'm not carrying that over to the company's overall performance, because their overhead is high for the amount of production they currently have. I'm looking at it more from the point of view of what is it worth to a strategic buyer, who already has its overhead structure in place and would not need QBC's structure. There are no offices or personnel that have to be taken along with a deal. QBC's affiliated company can just keep on keeping on and the public entity goes away.
The CEO said many...many months ago that QBC was for sale. That's why I got in and I posted around that time that the biggest risk (JMHO) was that QBC would try to drill it out themselves, ie, not sell. It hasn't sold yet...why not? Probably because of the amount and nature of the offers, assuming there were some offers. So instead, we got a compromise decision...no sale, no self(ie, affiliated company)-operating, but a deal with another operator to drill the HS part of the leases. Exactly why there was no sale...or not yet anyway...is still an open question. (I'm sure somebody knows.)
However, the drilling program should move a lot of the reserves from probable to proved fairly quickly, increasing the amount of reserves and their value that can be disclosed in SEC reporting. I agree that there is a different value applied to proved and proved producing catagories vs the non-proved catagories, but I also think I recall that Finco posted something months ago recognizing that fact and mentioning that the value of QBC would be increasing as reserves moved from possible or probable to proved as the drilling program progresses.
I think it was either XCO or GDP that used $1.00/mcf for proved and $.50/mcf for probable earlier in the year. You say its $.50 and $.35 now with $4 NG. I don't know. Is the appropriate price completely incremental to the current market, even to a buyer who is hedged at higher prices for the next couple of years?
Personally, I think the reserves are worth north of $3/share and that with the drilling program with XCO, the stock price risk has shifted from drilling it out themselves to something else, and I'm trying to get more insight about that. JMHO, of course.
FWIW and JMHO.
Val, I can argue several of your points, however, it is useless as it seems to me you will only beleive what makes you happy.
Finco presented a valuation and challenged someone to explain how it was wrong. I attempted to do so, because I think it is wrong. That was my motivation. I am long QBC, and have been long for a long time. Why would you question my motivation? Is it just your attempt to discredit me?
I have realized that I was arguing with someone who does not understand the definition of "Proven" is not a literal definition in the industry, and there is no point in arguing.
If you think QBC is going to get a > 35 % return at $ 4 NG, then there is no point arguing with you either.
FWIW and JMHO
Agreed. Very interesting. Both have good points.
I'm most interested in cpb's motivation to take the time to nitpick Finco's generalized, back of the envelope approximation of the stock's value based on reserves, in order to build an argument for an apparently lower valuation based on a per acre basis.
A couple of points...This isn't exactly wildcat territory anymore, as it was a year or two ago when most of the lease comparables occurred...and, as I recall, the reserve estimates Finco is talking about are not just QBC's estimates, but those contained in a independent 3rd party petroleum engineering report, which actually seemed a little more conservative than those reported by some neighboring companies on a per acre or per well basis in the HS. So, it seems to me (JMHO) the risk of not finding commercial quantities of gas on these leases is greatly diminished and that the HS IP's and EUR's are very high in comparison to most other gas fields currently producing...translating into higher IRR's with less risk, assuming reasonable costs. (JMHO)
GDP puts the EUR of a well with a 15 mmcf IP at 7 BCF and at 8 BCF for a 19.5 mmcf IP and they project IRR's in the 35% to 60% range with a 70% NRI at a net of $4.50/mcf (Page 19 of their recent presentation)...try to get that with treasuries...so why wouldn't a company with cash want to drill, and even shut in if necessary, while costs are low and wait for higher NG prices. (CHK has even made this case in the past)
For comparative purposes, XCO is reporting a 22 mmcf IP average, and they're QBC's primary operator. QBC's "estimates" use an EUR of 6.5 BCF with an NRI of 79%...the last well came in with a 15 mmcf IP, which would be a 7 BCF well according to GDP, and with a 79% NRI, the QBC IRR should be much higher than GDP's 35% or so (BTW, which they convert to $50,000/acre at PV 10..I guess that implies QBC is worth at least 13% more on a per acre basis, or even higher than the $74,000/acre on the 8 BCF acreage if they hit closer to the XCO average of 22 mmcf IP and have a higher EUR.)
The point being that per acre valuations leave a lot of room for a buyer to argue for higher assessments of various risk factors (discoverable quantities, NG price, costs, operating problems, etc.) and consequently, bundling those risk factor assessments can lead to a bargain acquisition in some cases. That's why I say its a buyer's argument.
BTW, aren't the $.35/mcf for unproved and $.50/mcf for proved assumptions arbitrary in a way as well, afterall, most operators are largely hedged between $6 and $7/mcf for the next couple of years, as they were when at least one operator was using $.50/mcf and $1.00/mcf just a few months ago?
FWIW and JMHO.
I understand that you do not understand the definition of the word proven, as far as an E & P company.
You are now using a term, expected, that nobody uses, and is not used in valuation.
I now understand you have no clue what you are talking about.