They have a $464MM note due later this year. This could be a good test on how the market would react to replacing debt with equity. Basic CAPM model puts the cost of equity around 10.41% ( risk premium: 5.5%, T-Bond: 2.2%, Beta: 1.48) and assuming they can refinance the note at around the same rate of 7.62% that would be the cost of debt capital. The school of thought is to choose the lower of the two options, which in this case would be debt capital. However, CAPM doesn't account for residual effects, as the market may react favorably to the companies lowered risk exposure. The other model is a much simpler one. Subtract the 2% dividend yield on the new shares used to replace the 7.62% interest on debt. The company would save 5.62% on $464MM of capital.
This is one of the "smart money" players. He has a background in banking and financial structure. I am wondering if he's not looking at the coal industries ability to roll over debt. The coal companies financials have sort of flown under the mainstream. The latest one hemorrhaging is Walter. And Peabody the strongest one of the industry has a $4.5bln market cap and carries over $6bln in debt. Berkowitz might be looking at a sharp and rather sudden shift in market share of power generation over the next couple of years.
Two out of three of those events were caused by hurricanes. The shale fields have shifted much of the base production out from the Gulf of Mexico. Where in pre-shale the Gulf accounted for over 20% is now down to 5%. The 2008 event was when ng traded tighter with oil, which hit $140 barrel. And partly helped by a trader who levered up a $6bln position. The 2008 event actually helped producers survive as it enabled them to hedge several years out at $8- $9 Mbtu as the spot price dropped below $2. Unlike coal, natural gas has a sizeable hedge market. Which leads me to my point. The current state of the domestic coal industry is dire looking to say the least. Patriot coal was a high profile bankruptcy last year, Walter energy is now on death watch. Nearly all of them are in terrible shape. The biggest Peabody is down to a $4bln market cap with a couple of billion in debt. The power generation shift from coal to natural gas could suddenly become more swift and dramatic than the market realizes. Which could be the cause of event 4.
If you're planning on traveling to Aussie now is not a bad time to go. The AUD$ has plummeted since April.
It's hard to explain the broader value of a $1.6MM payment as it pertains to a structured JV in an oil field that COULD or MIGHT be as large as the Bakken in ND to someone who is stuck on a single well drilled in Utah over four years ago. Respectfully, you prove day and night (with all your handles) that you don't understand any aspect of this business. No one is asking you to jump on board and buy but perhaps you can #$%$ and do something a little more constructive in your life...
Have a good one!
Short term caution needs to be exercised. The stock is a hedge fund hotel trading 50% above its 200DMA. Generally these guys protect profits like a grizzly bear protects her cubs. You really don't want to be caught in between either scenario.
I think Royale's option strikes at .0075 and is pegged at something like $1.6MM/USD...Expires in early 2016. The early results of Ramparts placement are positive. The stock for now is trading 20% over the placement...not bad.
The purpose of the buybacks are to keep the dilution minimal. It's interesting that through the years the executives have generally cashed their vested options out. One would think that it's hard to replace a stock that has 31%/CAGR over five years. But in the case of Roper it's been no problem as his cash in LL has grown 45%/CAGR over the same period.
When Royale releases its PR in a couple hours the $2000/acre comp needs to be highlighted.
Yes max0, this is good news. This leasehold is beginning to resemble a cash register. This $2000/acre comparison that Rampart is throwing out is very intriguing. This would suggest that lease activity is getting hot.
The bulk 50MM was bought at an average of $15.60. He has since bought 9MM more higher. However, he also has made a killing up and down his port over the past two years...that too adds cushion.
Maybe because T-bond yields have been on a sharp rise in recent weeks this could be the trend to come and interest rates follow suite. A rising rate would affect KM's cost of capital and therefore its growth rate. It's no reason to panic and sell, but something to understand.
When you have Goldman as your lead investment bank you get the whole firm. Goldman acts as one better than any Wall St firm. With mid-stream and Permian assets sold, Ichan and Mason don't have an appetite to give away anything else. Without a major move in natural gas $26 would be rich target and the better than selling anymore PP&E. Ichan has a lot of cushion in his average cost, Mason is very long term, and the new CEO is at the very beginning of his tenure. Short-termers hate dilution, but it's a strong market and could be forgiving if Chesapeake can tidy up its capital position.
Interesting questions. Here's what I like so far. Cash-in $2.7MM ($29/acre) cash-out 10% at $3.4MM ($1000/acre) It's funny that Rampart uses the gross $100/acre on its site. I'm certain that Rampart has easily obtained mezzanine and bank financing for the 10% phase. And if they actually pull through and finance the seismic and drilling phases Royale still has 41k acres plus 12.5k retained from the JV. And when the majors enter an un-developed play they generally due so with cash. Royale sits in a unique position where if this field takes hold Royale could cash-out its lease several times its value, as well as its equity option in Rampart all without spending a single dime on exploration.
Get Options for: Royl
View By Expiration: Jun 13 | Jul 13 | Sep 13 | Dec 13
Call Options Expire at close Friday, June 21, 2013
2.50 ROYL130622C00002500 0.55 0.00 0.25 0.40 18 1,464
3.00 ROYL130622C00003000 0.35 0.00 0.10 0.15 46 160
4.00 ROYL130622C00004000 0.20 0.00 N/A 0.05 111 143
5.00 ROYL130622C00005000 0.05 0.00 N/A 0.05 26 929
7.50 ROYL130622C00007500 0.25 0.00 N/A 0.10
Maybe you haven't cleared the $5k hurdle in your Schwab account to play options.
Strong statement. Will you back it up and write calls? Being a finance guy I'm sure you've seen the premiums call writers receive on this stock. For most maybe the premiums might not be large enough given the risk of a massive loss. But since you're so dam confident this would be like shoveling a pile of $100 dollar bills into the back of your pick-up truck. Otherwise how much are you earning by acting like a child on this MB?
I like this stock over the next 18 months because of the low cost entry into AK shale. But the Hosmer's did make a circus of the JV from a $5MM company on the other side of the world. This company is now semmingly going to take its initial payment to the 11th hour...This isn't the way to attract smart money.