I have conducted another analysis similar to the one I did in August citing specific facts supporting why ROYL was a solid investment. I have factored in some new information - along with some assumptions.
I have held off posting on the board, because I don't want to be accused of pumping if my facts are off. I was wondering if you would be interesting in me bouncing this off you first.
If you are interested, I will do something I have never done - provide my email address: email@example.com. I understand completely if you would prefer to pass.
I simply don't feel comfortable with this post with some of the reasonably informed assumptions I have made. I suppose I could simply make the post and take my lumps.
P.S. All you bashers can feel free to deluge me with emails go ahead. Mail accounts are like %$&%3@q - anybody can get one - even a new one.
Pearl here is the problem as I see it. Right now the price of oil and thus ng is being driven by the eco outlook and that is the main factor period. A war broke out between Israel and Humas and oil jumps up about 7 bucks the war continues and oil settles back down on eco news. The eco news is not going to get better for a while if not a long while. If it goes from bad to worse or really bad to terrible then ALL stock will be in the tank.
One reason in oil and ng is demand will go down with the eco. Another reason is a lot of the engery stocks (not Royal and other small caps) are in index funds that demand sell based on the basket concept instead of the individual value of the stock within the index. That is another GREED creation of the stock market allowed by the SEC if even asked. As the Dow goes down and it will as the eco sinks so does all stocks with the indexs. It is the old domino effect and yes some individual strength within a stock can overcome the index forced selling but that does not happen as much as index pressure takes them down (or up if up day)
I agree the value of the Utah and Royal will go up if VC20-2 comes in big and if Royal got an offer to sell at the 10-12 stock price they would not take it I do not think. Royal is a family business and it is hard to get a family business to sell. SFY would be a larger family started co. and they are others in the E&P sector. Would I sell Royal shares for 10?
In a heartbeat. It will be years before we see 10 in Royal even if VC20-2 comes in at 5 million you will not see $10 in this market.
I hope I am wrong but 1-2 says I am not.
It is going to be a rough ride for a while. Traders both small and MM will most likely do better than LT holders for a while if they bet down. The market has already taken some of the bad news in account but the MM use every bad news day as an excuse to make money off their shorts and this is a bear market and they are playing it bear.
Hope you keep your job and continue to trade with success. It is truely my wish that all live well and prosper and take care of those that do not but this does not seem to be the market for that.
I have been buying and selling all the way back to July. I got greedy and didn't take some profits when it hit $14+. I still stand to lose quite a bit of money on ROYL. I have been honest in my posts - good and bad. I never traded any more than 25% of my LONG position until now.
I had too much on one pony since then and thing outside everybody's control have changed. At first, I was only worried about the MMs. Nobody - including ROYL management (or you, me, Sue or Usar) could have ever anticipated the energy meltdown.
I had hope my post would trigger specific facts that would alleviate my concerns. V20-2 may still come in big, but I honestly think that would set more of a legitimate value on the Utah lease. It could take some time for this to be recognized by the market.
You never know. Things can change pretty quickly. In fact, if ROYL does deliver thing could change in an unexpected way. A good find in Utah could mean that ROYL is a bargain in this economy. Perhaps it is my background, but I can't understand why nobody thinks selling the company is a bad idea. It is completely illogical. It has low debt and low float. Shareholders would make a nice return. If ROYL got an offer of $10-12 per share, I would take it - no questions asked.
That's just my opinion - would you take $10
Pearl look out lol your now a swing trader SSUE is not appreciating your facts. SSUE by the post seems to agree with you (without saying it) that Royal is going to show a loss in 4th quarter. They however seem to think the $3 dollar share price is merely due to ng falling price and after all "all E&P" profits are going down in 4th quarter. Well yes that is correct but not all are going into the red, few are not hedged and none that I know of are betting so much value on a "a lease and a well" SSUE and others on here have been pumping the lease value for over 8 months now and being counting VC20-2 a done 5 million production well.
Well is that fact or dream land? Stock rarely trades on dream land but Royal sure did when it jumped up to 14 and I am not sure what caused that to be honest this board surely did it share of pumping and I was caught up in the we are all going to be filthy rich moment myself.
Reality has set in. Royal has and continues to be terrible on the way the "get out info" and who gets it first. If they "suckered" USAR and BU and others with the "field trip to Utah" which was a big part of the run up then they are smarter than I give them credit for especally if the owners didnt sell at 14 a share. Facts are we wait on VC20-2 in the dark and we face a bad 4th quarter report. Two bads will drive this stock down to the low 2's or maybe lower if the "swing traders get into it again" So now what? Flip a coin, just grit your jaw and stay LT, sell and eat your loses or swing trade. The ball is in every investor court to do what they like good luck to all but we be in the dark for a while longer as Royal it seems likes to set on both good and bad news go figure.
That is pretty much correct. However, I'm not sure ROYL will drop to the price I would rebuy at. The news is still outstanding and could be good. So, my strategy may backfire and that's okay. I find that I feel better about making a modest return and foregoing a possible fortune. The odds are kind of skewed. that way.
There are a lot of people on the board that have a lot more knowledge than me in the energy business and can probably make a wiser buy versus sell decision. I have to rely on their knowledge and my background. I would actually be just fine (actually glad) for those that stuck it out and hit it big. They simply have either more knowledge or a greater appetite for risk.
That's why I respect all poster's opinions such as Usar, Sue, and Rogere. Sure, Rogere can come across abrasive at times - so what. He calls it like he sees it, and I get value from his posts. They don't have to agree with me and vice versa. I wouldn't be holding the shares I have left if I thought ROYL wasn't worth the risk for those shares.
I have followed these posts, and think you have fairly laid out changes. It's nice to see somebody with a LONG position objectively lay out their thoughts - even at the point of alienating others that may expect you to pump. I did check your old posts, and you indeed have been bullish on ROYL, but quick to bring issues up and call management out. You have supported them when warranted and chastized them when they have dropped the ball. I might not agree with your position, but you lay out a good argument.
I also see where you consistently tell the board what your strategy is in advance and then execute it. Unlike some others that wait until something good or bad happens then indicate what you did. I agree with Rogere, that you are playing this game about as well as you can. I assume you will be buying if we drop down again.
Pearl ending to this novel
Why do I hold on? Waiting on VC20-2 is the biggest part of it to be honest. If they have bad news in drilling and can put a good spin on it then folks will hold on right or wrong I am not a pumper on this stock and most accuse me of bashing or shorting and I do not trade period up or down as a trader. I think Royal has some good news in production line ahead in Cal that regardless of Utah makes it a better stock than it was a year ago. I do not think even with the bad eco news that ng goes below
4.50 on average for next year. (if I am wrong on that one then get rid of all ng stocks now)
I do not see oil dropping below 30 on average either actually 35 would be about "right".
Here is the big question. Do we turn around the recession or go into a depression. A recession a deep one like this one will take 3 yrs from now before we see a recovery to not the boom price of 140 and 15 but 50-60 in oil and 6-9 in ng. Depression comes we are screwed Royal may well go under as will a lot of business. One of my past life's was number cruching like you. Look at the great depression and put the number to it. Apply the % of unemployment by the population of two era's
7.2 % today is twice or three times the number of raw unemployed today as in 1929. Last 3 months 1.5 million added to unemployed and of that how many will find work? Well that is another factor and not just Royal so I will end this novel. Since you trade (and I hate too)
I think trading down as you have has been a smart play. The downside for Royal is now greater than the upside which before I would not admit. I hope Royal beats the odds and overcomes bad magnt decisions and bad eco and hits a biggie up there it is the only plus card in the next 6 months to help the stock. IMHO
Pearl I will add my two cents to what you have published on the Royal quarter.
Royal was unhedged in 3rd quarter and ng prices where higher in 3rd quarter than now. How much?
I say at least a 30-40 % drop in ng price between the quarters so production would have to increase a lot to make up that kind of difference so we both agree revenue will be down. Expense will not not be down as they were drilling so I do not expect a large cut in expensives as in revenue.
If the Rio sale were not adjusted out of the profit figure for the 3rd quarter (I didnt look to see to be honest yes I am lazy here) then you are correct the impact of that sale will be hard to overcome.
I hate to post this and really do hope I am bad wrong here but I see the overall price of ng to remain even where it is now no longer than 2 more months then the eco will take over the price and the eco is terrible and getting worse.
I do not share your "hope" (and mine too) that it will recover soon. LT in any E&P right now takes a lot of guts as the eco is starting to show the crash. (unemployment at 7.2 now with a 500,000 job loss in Dec the big Christmas hiring season remember so look for Jan. job loss to top 1 million (I hope I am wrong again) and that number will knock at least 500 pts out of the market when it comes maybe 1000)
Royal has actually done better than a lot of better companies like XTO, CHK, DEV if you look at Royal last June and now it is about even. They have lost about half their value. That said too much of Royal price right now is based on hype not facts and the 4th quarter will be fact based. Not having VC20-2 in play or no news of it will be the bull in the china closet for Royal.
I gave 1-2 odds at the start of the week we would hear nothing from Royal all week that is now looking like a safe bet. I started to say 1-3 but didnt want to appear too negetive which I am when it comes to Royal mangt. When they get around to saying what has went wrong up there and somthing has went wrong. Then the stock will react to that. If they think releasing BS or bad news at quarter release is smart way to deal with the problem I think they are totally wrong but it is their company.
Give truth and bad news about VC20-2 now let the stock react to that then let the quarter stand on its own. If both are looked at as "bad" and come together look out below $2 bucks will be hard to hold.
more to come
I am holding 1/4 of the shares I did. I still think there is a good chance that ROYL will have good news on V20-2, and if it does I don't want to be left out.
I am in no hurry to dispose of all my shares at a low price when we have about a month to go before earnings are announced. I believe there is a good chance NG will rebound between now and then, based on the forecasted bitter weather and continued world tension in the middle east. These plus V20-2 are why.
By the way, I could be holding anywhere between zero and double the shares I have now a month down the road. We're all gambling here whether we admit it or not. I have hedged my bets to play the game either way.
The long-term potential for ROYL looks very promising; however, there is not enough data (volume, ROYL's market price). So my analysis has mainly focused on the short term. Even Q1 is virtually impossible without validated volume increases. So many things changed in Q4 (NG prices, volume increases, cost increases.
The purpose of my analysis was to figure out what to do between now and the release of the Q4 earnings release. For those who plan to hold until the economy rebounds (which it will), then my numbers don't mean much. In fact, it does not impact my own intent to hold ROYL. It was done to figure out how much to hold, with the possibility of buying back at a later time
The bottom line is that this analysis was similar to the one done in July. So I'll highlight things that have changed
- ROYL has increased NG volume
- NG prices have decreased significantly
- NG prices are are almost 1/3 of what was forecasted in July
- ROYL is better off than most companies, because NG prices were lower to begin with and have dropped less (ASSUMPTION)
- ROYL's operational costs were higher than planned in Q4 (ASSUMPTION)
- ROYL Q4 volume projections possibly lower than planned due to V20-2 moving out 60+ days (ASSUMPTION)
- ROYL sold the RIO property for a sizeable boost in capital
- ROYL made no sales similar to RIO in Q4 (ASSUMPTION)
- ROYL's success on V20-2 will have a significant impact on the short term PPS
When I take all of the factors above into account and go through the quarterly reports, it is difficult to come up with numbers that show a profit for Q4. In a nutshell, it is very difficult to come up with volumes high enough to offset falling NG prices. If you simply back out the RIO sale in Q3 as a starting point for Q4 - well, you get the picture.
So, that just means I sold more than planned. I hope I am wrong and ROYL does better than my figures indicate. If I had ROYL's actual volume at each location for ROYL - along with the price I would be much more confident. In short, I believe we will see ROYL in the red for Q4. They still stand a very good chance of showing an overall profit for 2008.
The single biggest factor in the short term PPS for ROYL will be the announcement of V20-2. If good news is released prior to or along with the Q4 earnings release, then the price should hold. That is what is so frustrating about the lack of communication. There is only about 4 weeks or so before ROYL will be announcing earnings, and I think most people expected to know by now.
So the gamble is a lot bigger than I expected, and too high for me to go into with the number of shares I would like. That is a personal decision. Please note that I still hold a sizeable LONG position based on my observations that ROYL eventually delivers and the market will rebound.