Across the board improvements
Usually MF is a waste of time, but had seen a few pieces by DiLailo, and he seems to actually have a fairly good grasp of the "bidness". His comments on SD. More I look at SD, the value could surprise on the up side. 3000 wells to another 3000 wells of potential. E and P investing is fun, not so sure about returns, but there will be exceptions. And SD has good management now.
There wasn't one thing about this past quarter's results that suggested the stock would sell-off. Earnings and cash flow increased. Production was up despite a lower rig count and a dozen wells being deferred due to infrastructure issues. The company is simply getting better at every single metric that matters. It's exactly what we want to see when buying shares of any company. Yet we see a company that at the time of this writing is off nearly 10% from its recent highs.
Don, I haven't looked at them in a while, but looked quickly at the q3 report, $1.4 billion of cash flow, $1 billion of capex, these are annual numbers. Based on that they could have paid a 27 cent per quarter div, that's 6%, that seems reasonable, easy to do. Tax was $230 million but only $64 million current, so that savings would add another 17 cents to the $1.08, $1.25/$19, 6.5%, plus 8% growth and you have a mid teens return, respectable. And with the prospect that the capex will fall, from 70% to 50% of cash flow, then you have a $1.90 distribution, 10% yield with some growth, maybe it's 4%, so mid teens again. Have to remember that execs get paid with stock options and buying back shares is always going to win in that scenario. DNR is probably a good 10%+ bet, but for me, it still pales in comparison to the midstream cos, mentioned XTXI. In four or five years, they could be paying $3 dist, at 3% yield is $100 price, $31 today, and your yield at that point is almost 10% on your investment. DNR is ok but not sure it meets my 15% hurdle. And I kind of understand why they didn't go the MLP route, less pay for execs, and MLPs are harder to manage, you have to really watch the cash because you performance is based on how much you return to owners each year. Staying as is, is much easier. And you collect your salary and bonus for a few more years. Not a bad gig for the execs, not the best for owners. I sound cynical but it is the way I see it today.
Thinking about e and p, oil has gone from $10 to $100 in a decade or so, don't think that is going to be replicated. Seems gas could be the better long term bet, but not sure I'm going to live that long. I don't see e and p as a great place to be except if you can pick a few that are mispriced or will grow 50% or whatever for a couple of years, not an easy exercise. My two cents.
The WestOK system had average natural gas processed volume of 479.3 MMCFD for the third quarter, a 26.1% increase from the third quarter 2012. Average NGL production was 21,522 BPD for the third quarter
2013, a 65.6% increase from the third quarter 2012, due to increased production on the gathering systems. Producers in the Mississippi Lime play in northwestern Oklahoma and southern Kansas continue to grow volumes behind APL's WestOK system, with current gathered volumes in excess of 525 MMCFD. With current nameplate capacity of 458 MMCFD, excess volumes are being offloaded and bypassed as the Partnership works to add capacity in the coming months. With the addition of refrigeration, compression and other engineering work currently being undertaken, the Waynoka facilities are expected to have an incremental 40-50 MMCFD of processing capacity available in November of this year.
If you have a problem, probably one you want. Atlas system is overflowing. Doesn't appear to be SD's water infrastructure asset.
Deferred 12 high volume wells in the third quarter due to production outperforming gas infrastructure capacity. An accelerated take-away project was placed in operation on October 22, 2013. Of the 12 deferred wells, four were put to sales after the project was complete, currently delivering an average per well rate of 895 Boe per day (48% oil). The eight remaining wells are scheduled to come on line over the next few months.
Cooperman has earned a right to be listened to. Don't always agree with his picks, but I have made 10x my, also his, investment in ATLS over the past few years, and think it will double again in the next four, 20x. Don't need a spreadsheet to figure out that's been a good bet.
His Omega Overseas Partners hedge fund has racked up average annual returns of 14.3%, after fees, since its inception in 1992, versus 8.6% for the Standard & Poor's 500.
Also, read an interview of Yardeni in Barron's, still bullish. He sees $120 earnings for S and P next year. And the consensus is we will have low int rates through 16. If we get the mindset that long term rates aren't moving, say a
Birdog, I'm about to give up on e and p investing. I can get a 2.5% div next year, with Crosstex XTXI and 20% growth for the next few years, that's mid 20% returns annually with a better yield, DNR maybe 10% returns. At some point with the larger e and p s, the returns, not rocket science, are the production increase plus div. I may still try to find something growing rapidly for a few years, or something undervalued, Devon might be a good bet, but then I think about Crosstex, which they control now and it could double fairly easily in the next 3 to 5 years, and 95+% of their revenues are fee based, no price roller coaster. I kind of thought the run up last week would be a bust.
Hard to see why SD's results weren't better received. The type curve data below for 30 day IPs of around 270 b/d, 140b for oill. A 50% return is as good as some of the top tier shales. And they have 3000 locations, almost $7 billion of potential value. Seems if MPO can get the costs down while their EURs are maybe greater, 50% returns could prove to be conservative. MPO could have a billion dollars of potential value in the Miss alone. 100 million barrels of potential in the Anadarko. $6 is too cheap.
EUR: 369 MBoe Well Costs: $2.95MM 50% IRR $2.3MM NPV 1.9 year Payback
I believe I did use that amount, I didn't spend a lot of time with it. An eps beat always helps. The operating numbers and costs will be the keys. At 5x next year's ebitda, MPO should be $15. Seems at $6, it's selling at a liquidation value. Will be interesting to see if they give '14 guidance. That might be as important as this quarter's numbers.
Goldman helped create a good buy opp Friday, the issues seem transitory. Have to think about the 2000+ well inventory in the Midland Basin at 450k boe per well, pushing a billion barrels of reserves potential. If oil stays at $90+, lots of growth. Someone suggested the NAV per acre in the basin was $200k per acre, that's a $30 billion potential. Discount that a bunch and you get lot higher stock price. Deals in the EF have been done well into the $20k per acre, at that value, a $75 stock price for AREX.
Figure a 10% yield on the future distribution with BRY and that's the price. Too big now to grow with acquisitions, relying on organic opps, gassy, with hedges coming off. Thought the value was $25 without the deal, high $20s now with the richer exchange. Good company but it's not going back to $40 anytime soon, if ever. A 10% return isn't bad but there are better plays in e and p assuming oil stays at $90 and gas doesn't crater to
Thinking about the debt, just a rough idea of the debt drag, if you have $2 billion of debt at 9%, that's $2.60 per share of net before tax you have to overcome. Value creation is going to take consistent execution and time.
Think MPO will show a great return in two years, my e and p bets, SD 70% return in two years out, ARP 70% also, AREX 80% and MPO 200%. The debt can be overcome. Thinking it will happen in two months is not realistic.
Devon featured in Barron's article today, it is cheap, well managed. The Miss/Woodford is close behind the Permian as their top plays. Devon's activity, success could help MPO's cause.
The company's long-time stake in the Permian Basin in the Southwestern U.S. has been supplemented by
shale additions in the Mississippian-Woodford Trend in north Oklahoma, the Rocky Mountains, and the Powder River Basin that spans the borders of Montana and Wyoming. Richels aims to lift Devon's light-oil production by about 10% per year.
Don, was just going to mention it, 3.5x ebitda after you back out midstream and $8 per barrel for proved reserves. Seems a good long term buy, and they are focused on value, plus their Woodford could be a big deal as well as the Delaware Basin Bone Spring, I think they would say that is the highest potential play now. Also Canada oil price is something like $50 currently, no pipe, that has to improve. And the Crosstex deal, I think that will double in three year and they own most of it. Well managed co.
Atlas Miss results for the qtr, 60% above the type curve, should be a good comparison for MPO.
On average, over the 45 day period, as Ed mentioned, the wells connected in the third quarter produced 468 BOE per day, composed of 53% liquids, including 161 barrels a day of crude oil and 46% residue gas. This compares to a type curve for a 45 day period of roughly 290 BOE, composed 58% of liquids, including 126 barrels of oil per day and 42% residue gas.
Bought some AREX today, they got slammed with what I though was not a big deal miss but apparently some did, down around 15% at one point. Opposite end of the spectrum from MPO, little debt to worry about, good liquidity. Producing 11kboe/d currently, $100k/b value, 80% liquids, a bunch of potential in the Midland Basin. 11k vs 35k for MPO. Will be interesting to see where the two stand in a couple of years. And somewhere in between, SD, probably can add $2 per year to the stock price, $10 in a couple of years, with no value for the multi zone potential, which could be a big deal, 30% return per year, not a home run but respectable, with upside.
You are a dinosaur as well, my grandparents loved Gunsmoke, Mr. Dillon, they had a TV room, guess you would call it a den now, but no talking was allowed in the room and the lights were never on. Ed Sullivan on Sundays was a big deal. Times have changed, my grandfather, retired at 65, went back to work at 70, think your SS benefit was no longer penalized at that point, and worked until he died at 80.
I bought some AREX today, it's a clean Permian Basin small co with not much debt. And over 2000 wells to drill, 80% liquids. Fairly simple story if oil prices stay at $90.