"Does the 600 million payable in January alay that worry, for lack of a better term?"
Absolutely. That should last them a couple of years at least. Unless they do something wonky like buy in the IPI group for cash.
"are you now thinking that this is a safer investment?"
Of course. Phil is gone, they have a good deal, and the price has been cleaved. I wouldn't call it "safe" but definitely much much safer and more attractive that last week and the previous 4 years I've been following IOC.
IMHO the key short arguments now would be of the more mundane variety - valuation, execution, timing, etc. If I were to short IOC right now it would be because I think the the 6.5 tcf or lower will play out. It's pretty clear that Total's estimated is 5.4 tcf. If it ends up at that number I think the price is still quite rich. But if one is a "true believer" in the GLJ number (and recall that GLJ isn't one of the parties making an estimate) then there is upside from here. The delineation wells will be critical in this regard. We won't really know more for a couple of years. I'm not sure the current shareholder base is down with that noise some some of the hot money is probably fleeing.
The drill bit will matter as well. Hitting another Moose or Elk and it's wasted money. Hit another Antelope and cha ching.
It will be interesting to see how the stock behaves now that the era of the uber-deal-next-week has passed.
And again, I have no problems whatsover with this deal - it s good and fair. The read-through per mcf values are pretty disappointing but in line with what I expected. I think Calio is a tool and his target of $85 is a slap in the face. These guys had no shame humping $2.00/mcf comparable deals that made no sense, and Calio was obsessed with "the shorts" too. For shame.
Also note that a chunk of the drilling and appraisal work gets deducted from future payments.
Still modeling this thing out. What it comes down to it seems is simply whether or not you think it's 5.4-6.5 tcf, or 9.9tcf+. The numbers I'm getting on a preliminary basis don't even support a $50 price if you use Total's stated expectations. Lots to do though, no conclusions yet.
Every million share dump would cost $88 million, and then they'd have to buy back those shares , plus the shares they were already short from "true" longs that wouldn't sell them. All because the deal is great. Don't think so.
Under you theories, would the long "hedgies" like Paulson be buying pre-market to try to tart up the price and encourage buying? And given so many more funds can go long vs. The small number of short funds, wouldn't that outweigh the shorties painting the tape?
If the deal met their expectations, they likely wouldn't sell. It's obvious to anyone objective that this deal is far below expectations (yet "good") so it sold off. Any "manipulation" would be around the margins, at best, IMHO.
We'll know eventually who dumped.
"I find it absolutely hard to believe that the press release and cc were good for a 34 point drop in the open based upon longs selling. That essentially equates to millions of shares being given up at a huge discount because as you say they were "disappointed". I just don't see that."
We can agree to disagree jdeo. I don't think it's the PR and cc responsible for the drop - it's the facts of the deal. A far lower price, contingencies, recertification, a 2016 FID at the earliest, and earliest first gas at 2020.
When you buy at stock at 75 or 85 because you think it's worth 150, and it turns out it's really only worth 50 or 60 in an upside case, not only do you sell, but bids evaporate so it's a trap door on the share price.
A short hedge fund smacking a few bids would be irrelevant if the deal were really good - if "the bigs" and "potential pigs" liked the deal, they would have plowed into the stock. They didn't.
IOC simply isn't worth what people thought, and the price reset violently. IMHO
Heh. Don't worry I was only long for about 120 minutes. I figured Total wouldn't bail on the same day they announced the deal but thanks for the concern.
You're a nut Pitt. You think DJ is in the back pocket of "the shorts". In any case, are you aware that Total is a French company and it's PR was put out at 10:45 GMT, almost 4 hours before NYSE market open? and that Total had already spoken to analysts and they put out reports before your supposed "pre-market" shenanigans. Unless you think Total is in cahoots with the shorts you need to take off your tin foil hat.
Thanks Moose - I'm sorry for pushing your buttons so much. You should know that I do this primarily to get under the skin of those that really really go after me and in doing so it gets others up in arms - perfectly understandable.
This is a great deal. I like it a lot and think it's very fair and more than I expected.
I agree and don't think the recertification should be a surprise as Exxon wanted it to. My understanding is Phil always drilled the crest of the formation and it's really speculation to to know the lateral extent of the reef etc. with out delineation wells - hence the big difference between Total and GCA, and IOC/GLJ. I don't think people should assume it will be higher than the 5.4 tcf - i.e. don't "pay" for it - treat it as upside. They way I would look at IOC now is pay for the baseline value, and get the "upside" for free. Following Kenny and others down the road of paying now for hoped upside later is what just happened.
I think the 2016 (earliest) FID and earliest 2020 gas is a disappointment to many, but it shouldn't be - even several analysts that cover OSH and Exxon stated this (remember Getit attacking me as a criminal for forecasting a 2016 FID?)
I missed out on the 40% drop but am not disappointed in that at all as I think shorting into the deal was the wrong play on a risk/reward basis. I am at "HOLD" now, officially.
Never maintained I am or was brilliant "sfiaes". In fact, I think anyone with an ounce of objectivity and a pinch of common sense would have seen the problems that I and others (Eric well before I even arrived on the scene) viewed as completely obvious. How many times did I give you a list of other deals in the 40-50 cents/mcf range? Even the Madison Williams IOC report contained the list.
As disclosed many many times, I have often traded IOC, usually by selling volatility. Yesterday was just the first trade since Hession joined the company.
I outlined my plan earlier - I was hoping for a hyped up distorting PR from IOC that made the deal sound way better than it was - I was hoping for a spike with some short covering and THEN go short. I think we may have had that if only the IOC PR was out there. But then Total had to ruin the party by disclosing the sad reality of the deal (Bernstein research now pegs it at 47 cents per mcf ) and spoiled the fun. I was originally thinking 60 might be a floor but saw it slice through that like a hot knife through a burbot's air bladder so I waited until 51 and played the bounce.
It's all about maximizing return for the risk you take on. Being long or short into a deal with the short interest being what it was and factoring in IOC's pump machine was the wrong play in my view. Just another trade in a stream of IOC trades for me.
Given the denial I am still reading I think we could grind down higher yet. If we crack 40s I may start selling some 40 and 45 puts.
I'd rather have a "piddling" low risk 13% return in 2 hours than tying up my capital for years on end only to get smoked. How'd that strategy work for ya?
"Once again the short hedgies manage to drop the pps on good news."
You must have a screw loose to think this. "Short hedgies" were probably covering on a net basis yesterday and likely helped keep the stock from tanking even more. You honestly think they puked out 25% of the float?
Face it. The deal was at a far far lower price than touts and analysts expected, and far far lower than the company itself guided to on many occasions ("multiples of the share price"). Even though they fired Phil it doesn't absolve the company of potential liability in my opinion. I think they'll probably get sued now -at a minimum the class action trolls will be out - probably by Monday morning.
It's very simple - IOC got a good deal but was overvalued due to tout hyping, incompetent analysts (IMHO), and past company "guidance".
Now we are having a reboot and IOC is on the path to legitimacy.
He seems to be upset that I had no short position, but bought at 51 and sold at 57.50 over the course of 2 hours. He seems to be taunting me for making 13% while he lost 40% I suppose. He also seems to struggle with grade 2 math as it's "$6 and change", not "$4 and change". I guess he's saying I'm dumb? Hmmmph..
Or how about
Great Brain takes no risk,completely sidesteps 40% blowdown, puts capital to work and bangs out 2 years' worth of market return in 2 hours.
I like that version better.
"The Great Ball Stomp" - isn't that the name of Kenny's annual shag dancing competition? Not sure if prefer that or the Great Traverse City Twerkathon (to raise money for the financially mauled Calvin College and Fuller Foundation).
Thanks Eric. And I must congratulate you on another series of brilliant trades. Selling those $100+ strike calls was quite savvy.
As for poor Alibis, I'm afraid his hubris and condescending rubbish got the better of him. So focused on me, and "shorts", he couldn't parse through simple data and see what was staring him in the face. Total's press release with the real expected value was not "manipulation" or "fake volume". For the first time they really had nothing to explain their massive losses except the cold hard facts.
Smart people learn from their mistakes, check their emotions, and change their views when the facts change. I have, and I think IOC is now a fairly legitimate company, almost overnight. $90 without a "deal" and a history of huge mismanagement and disappointment, or $55 with a deal, cash inbound, and a path to monetization.
I am a huge fan of Whitney Tilson. He is brilliant and nailed this one again. But also how he switched from short Netflix to long Netflix was a prime example of what it takes to be a great investor. Newly broke nutjobs like Alibis should pay attention.
I agree gents - he did the same thing with EWC - drove it up from 40 cents to 70 cents with relentless buying accounting for something like 80% of the buy volume. It's weird. Most smart institutions don't want to be more than 10% of the volume so they aren't affecting the price much. He seems reckless. He plowed hundreds of millions into Sino Forest equity only AFTER it was exposed as a fraud and lost it all almost instantly. Even more perplexing is at the time Sino's debt was trading at something like 40 cents on the dollar so he could have bought that.
Good point Moose. If I had to predict I'd say he won't sell a single share. He seems to be driven by something other than economics (personally and professionally). Just a guess.
Pride goeth before the fall, Alibas. How'd that "fake volume" and CC work out for ya?
Looks good on you I must say. Must drive you nuts that I made +13% in 2 hours yesterday.
When I bought at 51 yesterday my original plan was to sell in the mid 59s, thinking 60 might be a temporary cap on the stock. When it started fading I bailed out in the mid 57s. My expectation was that after an overblown selloff, you'd have MS and RJ start "defending" and the stock would rally. This played out beautifully and as expected but what makes me nervous is how it fizzled and started tanking again right into the close. Typically after a classic IOC selloff you get a strong rally off the bottom as the lemmings pile in and, importantly, the "bigs" don't bail out. Given the volume yesterday along with this fizzle I speculate that there are real big longs bailing huge. My guess Paulson is probably one - particularly as they are a hedge fund, and have had a decent year up until now - this hole blown in their portfolio will literally mean the loss of millions of dollars in performance fees for the PMs - it's December and like in Trading Places they are worried about the GI Joe with the Kung #$%$ Grip.
They are also generally "smart" and wouldn't sell it all in a panic, so my fear is that we get continued selling pressure for a while yet (days or weeks). Perhaps offsetting this is some short covering. Maybe it's a a wash, who knows.
Chandler is a wildcard. He's taken yet another bath and as a major holder he has to report his trades very shortly after he does them - he may very well be the one pounding out of the stock before he has to file as if he files his sell orders the market will probably start front running him and pounding the bid.
Might get some folks selling for tax losses as well at this time of year
Finally there's no longer the prospect of some uber event just around the corner. The delineation work etc. is a 2015 event so many may simply sell and revisit the stock in a year or so.
My plan is to play the volatility as best I can.