The question is based on the CEO saying that there's an offer today that would net MHR $600mil pre tax. However, the assumption is now they can wait another year to year and a half and get around $900mil pre tax. Essentially the decision is to hold the asset and gain 50% hopefully in one year. But in the recent presentation, assuming flat O&G prices, they have around a 50% IRR in production. While you can't discount the decision entirely by 50% because naturally there's exploration cost, but you can't assume a guaranteed $900mil in a year either. If they take the cash today and plough it into E&P, and exit 2014 at 45k- 50k boe/d without much if any balance sheet expansion that's a huge value driver for the shares. Furthermore, the cashflow from the production of 2014 roll's right into 2015...it simply accelerates production growth. I know Gary Evans is a former banker so he's mindful of present value's and IRR's. This leads me to think that this $1b offer had a large equity component. If it were cash he'd take it....Just my opinion...Your's?
I said it before, that it would take a billion to buy Eureka, I was wrong. Gary was offered that and turned it down so down the road I for see a bidding war for it or the whole company, that drive the share price much higher than we ever thought. How dose $28 to $36 sound?
I think it is more than just the $ and IRR. MHR is playing the infrastructure card in order to gain more acreage deals. Gary must believe the land in Monroe/Noble/Washington counties will be more valuable in a year or two, say going from $4000 per acre to $20,000 per acre... I remember the oil tycoon Pickens once have said he made all his money from the land, not from the drillbit...
I agree. Control of the take away capacity will allow them to drive great deals on additional acreage.
Gary has commented several times on the value of being in control of things. You can control timing and gain value be being a sole source provider.