For period 2014-2023:
Estimated Free cash flow: $225B
Dividends paid: $40B
Share buyback: $145B resulting in buying of 400M shares
Total dividends received per share: $50
Year ending 2023:
Estimated Revenue: $160B
Net income: $40B
Shares outstanding: 600M
Dividend per share: $8
Estimated price per share $1000.
So including dividends, the compounded annual return is around 20%.
The journey may be predictable and boring. The destination, however, is awesome.
From recent WSJ article:
Goldman Sachs GS +0.79% is advising Newfield on the sale of its Asian assets, including stakes in both producing and prospective oil-and-gas fields offshore of Malaysia and China. A document sent to prospective investors said the Asian assets had operating earnings of US$657 million last year.
Again taking the 2012 figure of $657 million and adjusting for depreciation and income taxes, the net income would be around $250 million (not including China's future production of Pearl field). At a PE of 8, the value would be $2 billion excluding NG assets.
So, both calculations resulted in valuation of between $2 and $3 billion including NG assets. So a figure of $2.5 billion is not unrealistic.
At 40% tax, the net proceeds of $1.5 billion can be deployed as follows:
1) Pay debt which is very good
2) Buyback shares, based on price, which is good
3) Dividend - which is good
4) Drill which is not so good
Assuming the Intl assets are carried on the books for nothing, a $1 billion value added would equal to $7 per share - $1 billion/135 million shares.
In my opinion, the above calculations are very conservative. Also if 6% of proved reserves are valued over $2 billion, how much value can be put on the remaining 94%?
Per my calculations, the 2013 cash flow from Malaysia is around $300 million. Applying a multiple of 4, the value will be $1.2 billion. Assuming China starts production in early 2014, the total annualized production will be around 5 million barrels. The cash flow, in my view, is $250 million (using Malaysia figures for approx.). Again at a multiple of 4, the value will be $1 billion. Coming to NG assets, the share of 600 bcf in the recent find and the exploration of other NG assets and the price of NG being around $16/mcf in Asia, to me a value of less than a billion looks conservative.
Hope management works towards getting the maximum value.
On a different note, does anyone know the production, reserves etc. of the gulf assets that were sold for $1 billion last year or so?
PXP was recently sold for $6.9 billion. NFX is currently trading at $3.3 billion.
Here is the comparison (2011 figures):
PXP - NFX
Oil Reserves: 244 million barrels - 263 million
Gas Reserves: 1 tcf - 2.3 tcf
Oil production: 17.8 million barrels - 19.65 million
Gas production: 111.5 bcf - 175.2 bcf
Equity: $3.2 billion - $3.9 billion
Debt: $3.7 billion - $3 billion
Net income: $206 million - $539 million
NFX is currently trading for about 2.2 times cash flow. At the current price, they can retire 30% of the stock if they can put about $1 billion of capital spending on hold for a year. If they do this for 2-3 years and the only outstanding shares are the ones I hold, I can become a billionaire in 3 years.
Progress with proved reserves of 1.9 tcfe was bought for CAD 5.5 billion.
NFX with proved reserves of 3.9 tcfe trading at enterprise value of approx USD 6.9 billion.
Thanks for all the responses. I have been feeling uneasy since I read the prospectus this afternoon. Having felt good about NG, I invested in UNG because I thought UNG prices fell more than, for example, CHK, relatively so thought they are better buy. Now I understand all the expenses and rollovers which dont make any sense. I would buy CHK instead. Lou Simpson bought 200K shares of CHK late last year.
Here is the bottom line:
1) NG goes down, UNG goes down more because of expenses.
2) NG stays flat, UNG goes down.
3) NG spikes, UNG goes up just a little bit.
So there are few odds of making money in UNG.
UNG is down about 94% since inception. During the same time NG prices went from about $8/mcf to $2.5 for a decline of 69%. Can someone explain the tracking relationship between UNG and NG?
Here is what will happen on Monday:
It will fluctuate.
If you think your facts and reasoning are correct then you dont have to worry about what the stock does. If not...
Here is some info re cash from conference calls:
Re cash use (from Q1 2011 call):
Frank Bisk - Pilot Advisors: Most of my questions have been answered. The one question is in terms of the debt that you added in the quarter, has that been paid down already or it seems like the way you're talking, it's going to be paid down.
Edward Meng - CFO: Yes. The straight answer, yes we are going to pay down -- we've continued to pay down in Q2. Again, we took on the additional bank facility in the first half, actually starting -- we had started that negotiation with the banks back in Q4 of last year. I know we have taken out some of these facilities in the first half of Q1, without really knowing how much in cash is going to come from the warrant exercise, but once we get to the end of Q1, knowing that over 96% of the warrants get exercised, while we're happy with that, so we're looking at reducing some of the bank’s facilities. So, as I said we look at as one time, nonrecurring going forward. So we do with that clarity from the (warrant side) we'll do a much better job, managing the cash position also the finance cost.
Daniel Wimsatt - aAD Capital: Two more quick things, just in terms of working capital necessary to continue to run the business, obviously you've got a lot of growth. I am trying to get a sense for how much of the available should the stock buyback spend. How much money do you need or are you comfortable with running the business?
Edward Meng - CFO: If you look at actually the average quarterly balance from last year, just for existing two existing fixed lines of narrow-strip 250,000 tons total and we're looking at actual working capital, we're maintaining about in the $60 million to $70 million on a quarter-to-quarter basis. By the end of the year, we will be adding another 60% of that with 250,000 tons and also the average price for the raw material import for the wide-strip is going to be higher than the narrow-strip. So, we think we'll be looking at pretty much the same amount of working capital to support that. The other thing I want to share with you is if you look at the China, let say the credit market, starting from this January 1 of this year, the China Central Bank has already raised the required reserve ratio four times in the last four months, especially once every month. So that means they are going to take back some of that liquidity in the market and then the banks are going to tighten up the credit availability to companies. So, we are seeing some of our customers have been impacted by the availability of financing from the local banks. So, in our case, given the cash coming from the bond exercise, so we should exercise a lot of caution and prudence, one is closely monitoring and also planning our cash availability to support not just the Phase 1, but also Phase II, of the expansion program. Just now one of the analysts, I mean I think he is from Global Hunter, was asking about what are the uses for the cash. I was cut off actually, before I fully answered that question. I want to say that the Company right now is actually continuing screening some potential, optimistic acquisition targets, as well as potential strategic partnership with the industry leaders. So, as I said, if any of those get really materialized they’ll be asking us to pay a close attention on maturity, current availability to us. So, that’s I think is both an opportunity as well as challenge going forward.
From Q4 2010 call
Finally, we are currently screening some potential acquisition targets and a potential strategic partnership with other market leader in the cold-rolled steel markets. Once these initiatives get materialized, there would be very strong demand for rigids capital requirements. We will disclose the progress of these business initiatives at appropriate time.
What is so informative about the post?
Actually the big guys are at a disadvantage compared to small individuals. Individuals dont need to show performance quarterly. No one says if you dont beat the SP500 in Sep quarter your rating will go down.
It is not big guys vs small guys. It is the active vs patient. Does not the stock market do a fine job of relocating money from the active to the patient.
If I were you I would start with companies that are you are familiar with and comfortable to own for the next 10 years. Also dont get mad.The stock does not know that you are mad.
I would not take margin. As John Maynard Keynes said: Markets can remain irrational a lot longer than you and I can remain solvent.
Anything can happen in the stock market. The stock is no longer trading on fundamentals. The issue here is the trust factor. Do we trust the financial reports or what the management is saying? We can say all the things like the stock is trading at book or the market cap is mostly cash. But this applies only if, hopefully, there are no future restatements.
Now people on this board are asking why the management is not saying something. Let us hope the management does not say anything. Otherwise, it will become clear that they are becoming "defensive". They are supposed to file 20-F by June but the company filed it in April itself. Also Harry Edelson is one plus in my opinion. This was not a hastily formed merger. There was tremendous amount of due diligence. Also CHOP is a SPAC and not a reverse merger. SPAC have more governance than reverse mergers. I have read, and read, and re-read 20-F, S-4, and about Harry Edelson and I did not find even one gotcha. This company is as clean as a whistle.
Here are my some of my thoughts about the recent price movements:
The number of shares outstanding in Dec 2010 is 46.1 million of which the O&D had 27.8 million. So let us say the float is 18.3 million (this figure may be off because it does not include some owners with 5% stake). Now in March 2011 the shares outstanding is 59.4 million and the float becomes 31.6 million for a net addition of 13.3 million shares which is huge. Quite frankly I was surprised at the level of exercise. I was expecting around 7-8 million. I dont know how many people exercised for quick profits, by taking a page from AERL (11/2010) after warrant exercise, but the stock price did not behave as expected and this huge float and daily drop has created a negative loop and couple this with the daily news has created a perfect storm.
However, I have a question about the balance sheet:
Restr. Cash: 66M
Notes Payable: 86M
Term Loans: 44M
Restr. Cash: 83M
Notes Payable: 125M
Term Loans: 39M
Interest income: 0.25M
Interest expense: 2.8M
One thing beyond my comprehension is why did the Notes payable increase from 86M to 125M when the company had 119M in cash and the phase 1 expenditures is 90% funded and phase 2 expenditures is only 12M and cash is generated from operations? Why do they need warrant exercise certainty when there is enough cash to satisfy all the capital expenditure needs? Also why is the company not paying off the debt? See interest income vs interest expense.
Assuming the above figures are correct, the net cash is 129M equal to $2.17.
Anyone in the mode to recover here are some stock recommendations - WFC and BRKB. Now if I am investing in these types of companies you might wonder how I ended up in CHOP. I am wondering too.
Jackasses like you miss the consistency of my postings. Go sell your 100-share long position and get a degree.
Ok. Just spent 3 hours reading the 20-F again and watching CHOP videos.
The O&D hold about 46% of the stock as a group.
Among the China small cap, CHOP is the best. I feel a lot more comfortable (just as I was before).
A year from now, when CHOP is trading at $12-13, we will only wonder why we didnt buy more during this time.
predict you leaving this board in the next 6 weeks when CHOP goes up by 20%.
My question was not from operational point of view. It was more from accounting point. It does not matter how much time you spend on DD if the integrity of the management cannot be measured. When you invest in a company, you want to just focus on the business but if you have to keep an eye on the accounting aspect that's not fun.
BTW, I am down about 26% on this stock (I added some when the company clarified the outlook). It does not worry me a bit as long as the operational performance is good. But I hate to see news releases like CFO resigned etc however remote they may seem at this point.
You never know. There are quite a number of companies that are not behaving. Dont mistake me I am still a long. But I dont want my position in the stock to cloud my decisions. All the talk about low PE holds only if the accounting is correct. I dont know whether anyone is 100% sure of this. Is it appropriate to think of the unthinkable like a news release which restates the earnings - EPS of -20 cents instead of 20 cents, for example and there might be no cash to buyback the shares due to restatements.
I definitely hope that this does not happen but the question is will I still be in the game if this happens.
Anyone here went to China and saw the plant and its products. Or the financial statements filed with Chinese authorities.