Frankly CHK management is the problem. They issued 10% more shares in the last 1-2 months to retire 1% of their debt. Not a good formula. So, even though NG prices have gone from $1.95 up to $2.40 in the same time period, institutions and brokerages are afraid of this name and tell their clients and readers to stay away.
You are wrong. PWE had a distressed sale of assets this month. This was similar to a liquidation value. The rest of the assets are "going concern" assets which should reflect the value when natural gas and oil sell at higher prices in 2017 and 2018, etc. In addition future reserves will be proved on their lands and this will also increase valuation. Company will be worth close to $5 per share in 2017 or 2018. Anyone that invests up to $2 per share should make a killing in 24 months.
I see $5 per share in value in 24 months as natural gas prices will be back to $4mcf as U.S. gas shipments around the world will be significant in two years along with ever increasing exports to Mexico. Not to mention that oil should go up $10-20 a barrel over the next 2-3 years.
CVR Partners which they own a ton of just sold 7 year bonds for 9.25%. This in an era of low interest rates. In Germany and Japan the 10 year bonds are negative interest. Banks in the U.S. are paying 1-2% for 2-5 year deposits. I just invested in an apartment building in Texas and we got a 10 year loan for 5%.
CVR basically paid double the interest that we paid for an apartment complex. On another apartment purchase this year we obtained a 4% interest rate due in 5 years. The lender must have been concerned about the income that could be generated by CVR Partners and CVR could not borrow at the 50% discount we are receiving in comparison to that 9 .25%.
Most high distribution investments have had to cut their distribution during the last year and this will probably be no exception. Why else is the equity price in free fall?
You need to look at the debt taken on in the new bond issue and 9.25% interest rate paid on the $650 million. The interest rate says it all about the cash flow prospects. I was just involved in a third refi in real estate and this loan was for 7 years at 4.5% while one of the CVI entities is paying double the interest rate. Watch what happens if/when the dividend is cut on the refineries. The bond holders get paid first. A dividend cut will cvi and cvr, just watch.
The point I was trying to make is that CVI gets distributions from both CVR and CVR Partners (UAN). The loan interest rate to the fertilizer portion of the distributions is at a crazy 9.25%% which in this day of low interest rates is very telling in terms of how lenders view the risk and the rate of interest charged. If either the refinery margins or fertilizer prices stay low the CVI earnings will take a hit, which means the dividends take a hit and unit/share prices of the entities will take a hit.Remember, Icahn bought CHK at $18 per share and it fell all the way to $1.50 a share. Commodities are like gambling.
Under the transaction recently announced by WLL they will issue approximately 100 million shares to retire one billion in debt. Since there are only about 200 million shares of WLL at this time, the additional shares should in my opinion cause the share price to decline by 50% unless oil prices rise substantially.
My fear is that Europe is breaking apart. England separates from the EU this week. Germany and the northern Europeans keep bailing out Greece, Italy, Spain and Portugal, how long before the citizens in those countries want to withdraw from the European Union. This should impact economic growth in Europe which will reduce energy demand. I see a recession in Europe from all of this fallout.
Investors need to evaluate how 50% more shares over the coming months is going to impact the $1 billion reduction in debt on WLL's balance sheet. I sold my shares at $10 this week which were acquired for $5 this year. I was looking for a return to $20 a share but now with 50% more shares being issued my opinion is that this drops back to $5. I will wait to enter at $5 again. Then hold until oil reaches $70 in a year, hoping for a return in the stock price to $10-15.
Market cap is at $330 million and debt exceeding $2 billion, Wall Street brokerages and investors are anti heavy debt load in a market that is overpriced. That is why there is no investor demand for these shares.
I think the oil price will hit $60 but that is a guess as Europe could fall apart as an economic unit and this would create a recession around the world which impacts oil prices. Of course the Middle East is not very stable as that part of the world has been fighting wars for the last 15 years and the oil and gas infrastructure can be damaged further in that part of the world.
they are issuing 50% more shares to reduce debt by $1 billion. How is this oversold with this kind of dilution?
Company just issued debt at 12% interest rate. There is $2 billion is total debt and $300 in market cap. The issuer of the last debt was able that kind of interest rate in a zero interest environment because the financials are #$%$. I am in a partnership investment that just acquired an apartment in Austin, Texas and we got a 4.5% interest rate for 10 years. Calumet is toast and lenders will not allow a distribution or dividend to be paid again.
A large percentage of their stores are in California and California is going to raise the minimum wage to $15 an hour over the next 5 years. Labor costs are going to go up every year and Amazon keeps cutting into retailers by offering more and more goods. I just think retail is a bad sector.
rather than ride it down further you should consider selling before they have to reduce the dividend which is what the price of the equity is indicating. I think this could fall 10-20% if/when the dividend is cut.