I am wondering whether their bankers will ask them to hedge one/two years out, at least a minimum level of production (e.g. 1000 bbls/d) to guarantee some cash flows going into 2017.
It is interesting. The likes of AREX hedged a lot at the bottom and now will make losses (!) on many of their 2016 hedges (hedged at $40)...two months ago, they looked smart, now not so much. But the value of hedging is to protect against the downside, at the expense of the upside. So there is a rational for these highly leveraged entities to guarantee a minimum of cash flows. Obviously, the question is how profitable are their wells at $50...last time they had a "sensitivity matrix" in their investor presentation was in February and the worst case was $55....no wonder they took that out since then...but now, we are actually close to those levels again and they were profitable on all of their properties at $55 (IRRs of 15-20%). Those are not great returns...but positive returns nonetheless...as a banker, I would put the pressure on them.
I did not see the press release for the increase in number of shares, but just to put things in perspective, 2.5M shares represents 6% of the number of shares outstanding...as far as dilution goes, that's pretty minor...probably linked to some sort of compensation plan? That would raise about $6M...that's the price of one or two wells...this is truly minor in the grand scheme of things!
I think firms like BCEI are completely overvalued given the nature of their assets (non-Permian, high breakeven wells). However, AREX has very low cost of operations so (1) they are more likely to survive and (2) the torque to oil upside is huge. Yes, the equity of all highly leveraged E&P firms are options and have been for the past six months. But as oil (and nat gas) recovers, these firms become profitable again, they can bring back their drilling rigs again, etc. Obviously, when oil was $26, if you assumed oil stayed there, then lights off for AREX...they were trading at about 60 cents a share earlier this year!! The debt pricing has recovered big time, the believe is now that AREX will survive...and if they do and oil can go back up to the $60s, then given their low cost structure, they can make good money. I have never seen professionals in the business take out (in this case $100M) for corporate overhead from PV-10. What you can debate is the value of their midstream assets: As you say, it is baked into their PV-10 because their midstream assets allows them to get to their very low cost structure. If they were to monetize them (asset sale leaseback for instance), then their cost structure would be higher. Tradeoff....
I am not in AREX. I almost jumped in five days ago at $1.86...oh well, I missed that train. But I do believe this one could easily go up to $5 in due time as oil rebounds. GLTA!
Thanks for the link. Yes, they did post their annual report. Surprised they did not make an announcement of it on their webpage. Yes, it seems mid-May is what they are targeting now for LONE.
Interestingly, I was looking at their option vesting schedule for the executive compensation and they are all under water. Even Pinkerton (with the lowest strike price) is at AUD 10. CEO (Brakken) and others, most of their option have a strike price between AUD14-20. That means the stock needs to climb seriously in order for them to make any money in the next two years on all their options granted in 2013-2014-2015.
Well, I would say that creates quite the incentive to get them going. Go LONE!
Thanks for the update but I cannot see the annual report anywhere on their website (and ASX filings), neither a press release or an updated slide deck. Can you post a link to this info?
I guess they have been delayed in the uplisting...if it is just a couple of weeks, then it is really nothing in the grand scheme of things. It will be crucial nonetheless to have the listing. Abide to the governance rules and proper reporting of a full listing and more importantly build a solid and diversified US shareholder base that wants exposure to solid E&P firms as the industry slowly recovers from the great price crash of 2014-2015.
Hopefully, this delay is because they were taken by some (real) business on the operational front. I guess we will have a full update soon enough!
I actually followed your advice and switched my CEQP units to AMID. I think CEQP has more to run. But AMID seems to be on a very good footing too, without the tax issue.
Arex up more than 50% since I mentioned it 5 days ago on this board!!! Sadly, I did not buy it...and now I feel the easy money has been made. Still, will probably continue to outperform. Volume is huge...wonder what would have happened to Lonestar had it had its uplisting already...
Definitely getting some excitement of late...and deservedly so. Their new production facility (with Altagas) comes online in three months...production will move up massively...it will then get the attention it deserves!
Somewhat disappointing indeed, especially after API survey data last night...oh well, if it goes down to the low 5s, I will be buying again.
They downgraded Lonestar's debt yesterday. Stating the obvious: Less hedged going forward, highly leveraged operation, relatively small scale operations. Nothing new here; they also cite the lack of news on the redetermination front...and I would expect they would also view positively a US listing.
EIA report is somewhat disappointing after API survey was pointing towards a draw. Nonetheless, the sector is still finding the favors of investors and with crude around $45, Lonestar might consider hedging some of their future production. I imagine they will try to play it safe. And I also believe banks will require them to hedge some of their future production.
Still no news on the uplisting to NASDAQ...three days remaining in order to not disappoint the market with a "delay" on that front. Not sure why there is a delay. The procedure was voted for overwhelmingly, the press report made it seem that the "court approval" from Australia was going to be a formality. And that it should have happened at the beginning of the month.
My (secret) hope is that they will come out with a bang: New acreage, new well results, new bank base and new listing, all in one. Let's hope Christmas comes early this year!
Well said...I think that when a stock jumps by 50%, it needs to find a new footing. And in this case, a new shareholder base as well with many short-term investors wanting out now that the "big pop" is behind us. The point that you make is that once the dust settles (and yes, including the thorny tax issues), this stock should really outperform its peers. Selling now to buy back in later could very well lead to missing out on a $4-$6 jump which could honestly happen at any point as the firm brings out further good news, e.g. during Q1 call for instance. I am staying in so that I can participate in the significant upside that remains here. We are barely back at January 1st levels when all the uncertainty was still in this stock. If anything, I am just surprised we are not much higher than $18...
I agree. The tax issue seems to #$%$ a lot of retail investors (as evidenced by this board). However, looking at beyond "losing" the dividends this year. This is one of the best outcomes we could have expected for the company. And with the continued normalization of the oil and gas market, I think $30-$40 unit price will ultimately swamp any tax consideration.
As for "avoiding" taxes by moving in and out, with the volatility we have seen, I think you could easily miss out $5-$6 run up and that would more than offset any tax impact. Just my thoughts. Still need to be educated on the tax side of MLPs, but from people in the know on this board, it seems limited to about $2-$3 per unit. And it is a legitimate tax gain as opposed to a Linn type of firms in complete financial distress...
It's been quite a disappointing ride so far this year. Yet again, the firm has made all the right moves, including cutting the dividend to a more sustainable level...but as people are putting "risk on" trades, they are going away from the safer, less leveraged plays like Surge. What is frustrating is how Surge got beaten down and how little of a rebound it has seen...this stock should be much closer to $3 already. The well results are getting better and better over time...I just wish they could use this down period to acquire good assets on the cheap...in the meantime, I got tons of dividend money and I still expect them to continue to deliver. It is one of my core holdings and will remain so for years to come...at least as long as PC is running the show. GLTA!
Illiquidity works both ways...when no one is selling, the stock pops...I think people (including me) believe the uplisting will come with other good news...mostly linked to the redetermination and the good use of IOG's capital in the downturn. Looking at the permitting from the Texas Railroad Commission, I am not expecting much on the drilling front, but who knows, that would be the cherry on top. If they do not come out with all this good news, the stock might take a breather after a phenomenal run-up. I might add again if we can go back to the low 5s...
It seems we are not all clear on the tax issue. However, I would be surprised that it would go much above $2 per unit (for recent acquirers like me). Now, you could get rid of your CEQP units and reinvest them elsewhere. But look around and tell me which large cap MLP has similar prospects and good footing after all these transactions. Sure, you could sell now and buy after the transaction is consummated. But if you buy it at, say, $24 this summer, your tax savings will not cover the "lost" $6 on the trade...if everyone thinks it is going to "pop" on the day it is closed and we do not know exactly those dates before it happens, I believe you are in for missing a big upward movement...I would suspect that the unit value will slowly march higher as investors get comfortable with the tax bill. If you think of the tax bill, it is caused by a fantastic transaction that resolves a lot of the firm's issues. I am willing to "sacrifice" this year's dividends for that. That unit will be much higher down the road...long-term buy and hold...
Thank you for all these helpful comments on the tax ramifications. I am not sure I understand the following:
"So, best case, let's assume it''s $600M, all capital. Divide that among 69M units roughly, and you get $8.70 per share. Figure 15% fed plus 5% state and your per-unit cost would be no less than $3.50."
$8.70 * 20% = $1.74, not $3.50...what I am not getting? Is it a capital gain or is it considered income?
That's the big gusher I am expecting...but no news yet...probably also some anticipation of the uplisting. And lots of similarly highly leveraged firms getting a big boost this week (ECA, CHK, AREX, BCEI, etc.). All up massively. So definitely part of the general movement up..."risk on" approach to the space as now people actually start talking about the lack of spare capacity in global production after dramatic capex cutbacks...we could actually see oil above $60 next year. Not impossible at all...and if that is the case, then Lonestar is an easy double from here. I am going to hold at least one year in order to have long-term gains...
I just checked the website of the RRC (Railroad commission in Texas). No new wells permitted since February. The big gusher I was hoping to see before the summer would be the wells at College Station next to the Apache gushers...those are all in the Unproven category. If they are successful (most likely), it would make significant additions to reserves and probably calm any banker's nerves in the redetermination process. They might have slowed down massively the drilling process in February/March as we were hitting sub $30s prices...the rig count dropped again this week. For most operators, even $40s oil will not cut it. Things are dire out there. But we know that as of $42 and above, Lonestar is breakeven even after financing expenses. So we are back in the green zone for Lonestar...hence the surge in the price. I also think there has been a bit of froth this week and "risk on" bets. I would not be surprised to see it go down back in the $5s next week...we still need to hear an update on the uplisting. Should come any day now...
Redetermination is looming...Moody's downgrade it them again late last week...they actually forecasted some sort of debt restructuring and/or bankruptcy within the coming year. Debt is trading at pennies on the dollar...the lights are out at Lightstream...this is a case of the living dead...maybe, just maybe, they can escape this one. They stopped drilling a while back...using all of their cash flow to pay down the debt....it is total speculation at this point. I would not touch it.
Freddy is right...pure speculative play...overleveraged...much better plays elsewhere...torque to oil recovery, go to AREX or LNREF...but Lightstream will be out of business unless oil recovers to $60...this is dramatic. Very poor management...listed at $35 in 2009...all down hill from there. Completely overpaid for many of their assets...used only debt and sank the ship...they might sell out to a bigger player (VET or CPG are the most likely) but they might wait and collect the pieces in bankruptcy courts.
The strengthening of the CAD and of oil prices will give them a potential extension but the banks might be losing their patience...debt is trading at pennies on the dollar. I would believe that buying back debt on the open market would make a lot of sense right now...but I don't think they have the cash. I guess they will start thinking about hedging if oil futures (one year out) go to $50 or so...we are almost there...or they will do a risk shifting strategy where they will only hedge on spikes and hope that we hit the elusive $60...in which case, they would start to breathe again...but don't hold your breath, this one is a very troubled case...I would just go and looks elsewhere. I love Surge Energy in the Canadian space...top management.