He was talking about the Tesero pipeline to cross Cook Inlet - not the acquisition. Tesero is funding all the development costs and will pay Mill for a connecting pipeline. The pipeline will lower Mill operating costs. So it costs nothing to Mill, they sell an asset for milllions and lower costs. That's what he meant by infinite return (return based on zero or negative investment).
Agree. I think they will mutually agree to some sort of buyout with Apollo to clear the deck. Maybe they give Apollo some warrants to avoid paying a big buyout fee in cash. They have outgrown Apollo.
But is a lease a "property"? I think they will sell some mill-pd, negotiate a buyout with Apollo. Pay the big fee or maybe give Apollo some options to get rid of the covenants and give the new lender a clean first lien.
They won't actually be issuing any stock in the management plan so it's "phantom stock" and there is no dilution. The company will provide cash incentives (using a small part of their growing cash pile) to management and employees though as if they owned shares of stock.
Shareholders would of course like to pay management as little as possible, but management incentives to raise the stock price are important. As a multi-year plan, I thought it was reasonable in scope. As you can imagine, there are also incentives for management to time these plans for when they think their stock is trading at a low point. Management had good timing here with the stock not having moved much yet despite the blowout Q3 earnings report.
They sold more mill-pd, but not any more of the convertible mill-pc in the quarter. They haven't closed or financed the acquisition yet. Mill-pc sales were to build cash and fund Sword and other capital expenditures.
GTAX deal is looking like a winner in light of subsequent deals by RCAP to buy ICH and SFNS. I think NHLD wants to grow, rather than be acquired. However, there is no denying the synergies with LTS. Given that LTS and NHLD work together on many deals, Frost would know who to call if he decided to make an offer.
10Q was probably being held up by the Apollo waiver and released as soon as that was completed. The call schedule is fine. Other stuff to nit pick on like the high capex, sale of some add mill-pd in addition to the IPO and slow pace of the offshore wells. Guidance for April 2014 remained unchanged at 6,000 boepd BUT they included the pending acquisition production in the 6,000 guidance.
On the positive side WMRU wells moving along and they hit their 4,000 boepd guidance for the end of the calendar year a month early. I expected the stock to trade a bit lower as it has (sent alerts and analysis to subscribers before the open), but they are on-track. Production would be ramping up faster if they had not decided a few months back to focus on proving up reserves with RU9 in favor of drilling some more quick, cheap and easy wells closer to the platform.
Looks ok, although I'm focusing more on Petroamerica (PTAXF, PTA.V) lately.
If you missed my mill pick which was a big winner check out ptaxf. Canadien oil with ops on columbia trsding at 1x cash flow. Cheap growth and good bslance sheet. Now at 32 cents. Fair valur is over a buck. Trsdes as pta.v in csnada. Analysis posted on pta.v boatd.
No big effects. It makes US banks marginally less profitable than foreign banks. It limits banks from being "full service" banks for some client needs. Trading profits make the large banks more diversifiied and stable. The rule has the exact opposite effect (making big banks slightly more risky) as what it was intended to do.
Unfortunately this is just a small part of a broad attack on the banks that limits our economic recovery. Holder s constantly suing banks for all sorts of dubious things. The attacks on BAC have become a govt racket. Demands for ever higher capital levels and more and more read tape to make loans are also factors in the slow economic recovery (slowest post world war II recovery).
Volker rule is less damaging than Obummercare and other attacks on business though.
Hedge funds not afraid to invest in this sector:
Nov 13 (Reuters) - U.S. private equity fund Advent International will buy a minority stake in Colombia's Ocensa oil pipeline for $1.1 billion from Canadian oil firm Talisman Energy Inc, France's Total SA and Madrid-based Cepsa, the Wall Street Journal reported citing people familiar with the matter.
Under the agreement, Advent will get a 22 percent stake in one of the largest oil pipelines in Colombia by capacity, the Journal reported.
Much of Petroamerica leases are along the new pipeline route (see their investor presentation). A new pipeline makes these leases into "beachfront property". The company has more options for selling their oil which means that margins (they are already making $77 / barrel) are likely to increase even more. More paths to market for the oil also makes it more difficult for the nuisance terrorist attacks to disrupt sales. The fact that EC and others are investing billions in new infrastructure is also a tremendous vote of confidence.
Just to put the numbers in perspective, the company currently has 77 mil in cash which is more than enough already. 177 mil in cash flow means that in 1 year they can fund 80 mil in capital expenditures (more than enough to grow production), and payoff the 35 mil in debt with 62 mil in additional cash accumulating. In the unlikely event that the stock trades flat, 62 mil would enough cash to repurchase over 1/4 the shares or pat a 10 cents / share dividend.
The valuation is frankly astounding and I'm not even figuring in any growth. Any analyst with a 40 - 45 cent price target for this stock is either mathematically challenged, not really paying attention or both.
They could not have reported until resolving the Apollo covenant issue. Now that is resolved the accountants and lawyers can sign off on the report without having to add all sorts of add. risk factor disclosures for a technical default.
One good way to measure whether terrorism is "effective" or not is transportation costs. Petroamerica is mostly trucking it's oil. There are options of where it can be trucked. No Q3 shut ins. Oil keeps pumping and they are netting $77 / barrel even with high transportation costs. In fact transportation costs had a very slight blip in Q3, but are trending lower from 2012. They are likely to trend lower in 2014 with the Bicentario pipeline (cheaper than trucking) operational and perhaps peace talks reaching a resolution.
The bottom line is that terrorism is on the decline and might raise transportation costs by $1 barrel at worst. No big deal for a company netting $77 / barrel and increasing production.
I read a couple of the analyst reports to try and understand why the Wall St. coverage of this issue is so poor. A high margin growth stock with a great balance sheet that is piling up cash should not be trading at less than 1X cash flow. The analyst target prices of 40 - 45 cents that I saw were just plain stupid. Anyone that looked at the Q3 report (I think some of the "analysts" haven't even gotten to it yet) should have a price target of at least $1 - $1.50. A 40 cent price target is a joke.
I own them both. PTAXF is currently the top pick in my newsletter and Mill is a pick (was a top pick at lower levels).
PTAXF (PTA.V in Canada) (is producing 6,300 bopd of light oil. Mill has guided for 4,000 (including some nat gas) by end of the year.
- Production Growth
Both companies are ramping up production rapidly. Both should be in the 10K - 15K boepd range within a couple of years.
PTAXF (trades in Canada as PTA.V) has a market cap of 200 mil but enterprise value is only around 160 mil as cash exceeds debt. Mill has an enterprise value including pref stock of about 450 mil (about 3x as much as PTAXF). In fact the enterprise value / cash flow is less than 1X for PTAXF assuming constant production and prices!
- Balance Sheet
Mill is moderately leveraged. PTAXF has cash of 77 mil and debt of 35 mil with no pref stock. They are generating cash and fully funded.
Both companies have very high operating margins and low production costs. PTAXF netted $77 / barrel in Q3 which is comparable to Mill.
Mill has some rather spectacular midstream assets. Advantage to Mill here.
Both companies have mgt that's doing a good job. Petroamerica just approved a much more modest management stock incentive plan than what Mill has proposed.
Alaska is a great location with tax rebates and favorable regulators. Columbia has low taxes and is pro-business but has pesky rebel groups that make headlines bombing oil pipelines. This doesn't actually disrupt production for Petroamerica, but the headlines can be bad.
- Operated vs Non-operated
Mill has all operated wells and Petroamerica is mostly non-operated, although they will be operating more. Advantage here for Mill.
Both companies have rather spectacular leases.
- Decline Rates
Mill has very low decline rates as compared to moderate decline rates for PTAXF. Advantage Mill.
I like both, but 1X cash flow is insane!
The short answer is "who cares". You find a great undervalued growth story that's generating huge amounts of cash, don't worry about the short term "noise". But since you asked....
1. Arbitrage Trading
PTA.V also trades as PTAXF on the pink sheets. Trading there has picked up. There is arbitrage trading were PTA.V gets bought and sold in order to take advantage of slight valuation differences (including currency conversion) between the issues.
2. Market Making
Many institutions are involved in "market making" where they buy and sell trying to make a small spread on the bid / ask difference.
3. Customer Orders
Many institutions are buying and selling for customers - not themselves. Customers are doing different things.
4. Stocks are bought and sold as "baskets"
Much trading has nothing to do with the stock itself. Often institutions will buy or sell a basket of stocks such as Columbian stocks, oil stocks or Canadien stocks for many reasons. Oil is up, oil is down, there is a negative headline or some economic indicator. An institution moves out of a Columbian ETF and the ETF sells components or vice versa.
It's the new Liberal "math". Obummer doubles the debt and is "acting like a fiscal conservative". Obummercare causes insurance costs to skyrocket and Foulger will still claim it's lowering costs.
The company has certainly had a couple of off quarters, but is the "fat lady about to sing"? That suggests you think EGT is going bankrupt. The company has no debt, some cash and is generating cash. Are you deliberately trying to mislead people to talk the price down and pickup cheap shares? What a bunch of BS.