I understand why nobody is investing in these guys when there are so many better companies in the oil patch these days. However, at these levels, the firm is basically priced for bankruptcy.
While bankruptcy could actually happen and it baffles me that they do not cut the dividend to ZERO in this time of crisis, I do believe they will survive. If they do, market cap is bound to go higher. Right now, they need to trim everything including their INSANELY high management compensation package. It is scandalous how much these guys get paid, they are a small E&P firm (because of their own doing). They are a high cost producer that has destroyed shareholder value way before the current rout...at these levels I am hanging around. Definitely not adding, but hanging around. I think it will double in the next year. Highly speculative at this point in time. A safer bet would be Surge Energy. GLTA!
ECA just stated that Montney is one of the four assets they will focus on. With a very large portfolio of assets across the entire North American space, this is a vote of confidence.
AAV has its main asset base right next to ECA's...AAV is one of the most solid players in the space, period. Volatility will remain but it is one of the safer bets out there.
The book value will get smashed by lower oil prices, no?!
That being said, I also think PWE is a screaming buy. I did get confirmation from IR that they have no hedges in place and that they also have no end-user agreement yet (in negotiations). So basically, they went "naked" on prices before settling on the end-user agreements. It is a blunder that will cost them dozens of millions in lost revenues for Q4.
Obviously, that is already reflected in the stock price. The stock price means the market cap is less than $1Bn. And the whole enterprise value is less than $3.5Bn...for a firm producing more than 100MMboe/d...70% oil (mostly light oil)...these are definitely unusual times...still cannot believe how badly Saudis want to talk oil prices down so much. This is ridiculous. The word "glut" is becoming somewhat overused. Production in North America will come to a grinding halt as of the second half of 2015...demand will go up...prices will recover. In the meantime, PWE will survive...they should cut the dividend by 50% asap, which I think they will announce before year end.
Finally, a real sense of urgency at the firm. Finally a significant dividend cut (why they still pay out anything is beyond me)...reduced capex, reduced dividend. Any excess cash towards paying down debt...if only we could have done this sooner. Thankfully, the asset sales performed earlier this year gives us hope for survival but it is not clear how much we might recover from here.
Bakken is now officially for sale...let's see if VET of Crescent will step up for those assets. I just hope they avoid any fire sale prices...it is a long and slow death that is being served.
I will keep my stake but I will certainly not add more. I think Surge Energy is a much better bet if one wants exposure to Canadian light oil. Heck, I think PennWest is a much better bet given the significantly larger production there. For long suffering LSTMF shareholders, we can only take comfort in knowing that management is finally getting in survival mode. It's about time.
For all those who say prices of oil are going to $20-$30...although nothing is impossible in a panic, one has to realize that no oil from North America is profitable at those prices. Drilling halts, future production drops, supply is limited, prices go back up. We have declining fields all around the world and still an increase in oil demand. We are not in the midst of a global meltdown as we were in 2008. Saudis are "talking" prices down but at some point there words will not be credible. They too have a budget to balance. Most other OPEC members will run huge deficits at these prices. They are simply putting pressure on these members to share the cut. Let's see what happens next. This is a once in a decade event. Oil firms, including LSTMF, are reacting correctly and rapidly. GLTA!
Where will the bottom be? Maybe an urgent meeting of OPEC will happen. But clearly the Saudis won't budge. They want all the other nations to come crawling back to them with promises of their own cut. Unfortunately, we know that will simply not happen. The only disciplined producers are non-governmental. Basically, the cuts will come from shale in North America. It is getting very ugly out there. Pick firms without too much debt, buy and do not look for two years.
I am thinking XOM could compensate for their terrible timing of their XTO acquisition in 2008 by buying ECA just AFTER the crash of 2014...it seems incredible that no majors would start sniffing around with a market cap now approaching the $9Bn mark...majors think 10 years out...if oil prices recover in one or two years, this would turn out to be a good acquisition. What is impressive is how hard it has fallen given the sheer size of the firm. Usually, large caps do better. I still cannot believe I did not short this one hard...at these levels, hard to say where we stand. It was $10 more three months ago! Overdone, more to come? Anybody's guess but I find incredible that Arab countries can steer prices so easily with press releases? $40 next year?!? We might touch it but there will be no rigs drilling at those prices...
In terms of relative strength, AAV keeps outperforming its peers. I believe it is due to three factors:
1. Operational excellence (one of the lowest cost producers)
2. Relatively low debt
3. More gas weighted than others
I am getting somewhat concerned about AECO pricing in Canada. There is a sense that Marcellus gas is going to compete more and more for market share with Canadian gas. That could hurt AECO prices in the medium term. Something to be aware as you make your investment decisions.
That is exactly why the stock has suffered so much since September. It might cost Shuttles his job if the rout continues. We need oil prices to find a floor here...not there yet...
I think PWE is also on (fire) sale...
For those with a two to three year horizons, there are some real "gifts" out there...GLTA!
DEJ is up! Remarkable show of strength...clearly investors expect a very strong operational performance in the coming couple of months. I truly hope they will not be disappointed (including me with my small position)...It has to be said, we are currently seeing the benefits of being financed with equity. What is happening to ECA?!? I know their acquisition of ATHL was terrible but a market cap of $10Bn?!?
It seems it is a matter of days, if not minutes. I cannot believe I bought some calls when the stock was at $23...oh my, how misguided!
The falling knife continues its fall...beware it is very sharp! I feel that if I buy puts, I will call the bottom with my actions! GLTA!
All in all, the massive drop of more than 70% in market cap since earlier this summer reflects the bad news and more. Obviously, prices can still go down. For instance, when they cut the dividend (they should in my mind). But anything under $3 will pay handsomely over a two to three year horizon. IMHO. Please do your own D&D and share with the board any info you might find on these end-user agreements. Thank you
What happened in the last six months? I remember earlier this year the Saudis were "comfortable" with $100 a barrel. Suddenly, tensions in the middle east subsided, and the Saudis went back to their 1986 playbook and started a fight for market share. It took just about everyone by surprise.
For PWE, still reeling from previous poor management, the accounting "scandal" and the switch from hedging to end-user agreements all came to compound a 40%, yes 40%, drop in oil prices in less than four months with no clear prospect of a short term rebound in oil given the Saudis' rhetoric. This is the absolute perfect storm and PWE went into it with high levels of debt. All is all, it is easy to see how the price drop occurred, with massive withdrawals from ETFs and energy hedge funds closing shop not helping.
Now what? Obviously, we all wish we had sold at $10, $5, etc. But we were all thinking of adding more...and now that it is below $3, we want to sell?
The new management is significantly better than the old management. But this fact seems to have been lost in the storm. Production is already seeing a significant turnaround. There has been some valuable asset sales as well. A key focus has been to focus on operational efficiency and reducing debt. Thankfully, this focus started last year.
The accounting scandal turned out to be, well, not a scandal. Very minor revisions in the grand scheme of things and again, new management not the cause but the reason for the discovery.
Debt is high but under control. Check the maturity structure of their debt. It is not as if $1.5Bn was coming to maturity next year. PWE can easily cope with a year at $65 USD ($75 CAD). It would be tough but manageable.
Finally, we need to learn more about these end-user agreements. I have not found the details yet. But depending on how they are structured, it is a simple alternative to hedging where you lock in the price with the end user. I will contact IR about this.
Sentiment: Strong Buy
I would load up the truck at these levels...one day we will look back and think these prices did not make sense. Buy when there is blood on the streets. I know it is hard to do, it goes against all our instincts but this is the time to buy, period. They can easily cope with the debt. Their production can sustain this storm. Even if oil stays at $65 for a year, they can easily stay on course. Check the debt maturity, almost nothing for next year, spread out over several years, they are so far from bankruptcy...and yet people claim that they will announce it. Either scaremongers or plain stupid. These are stupid prices, it brings the stupid out of all of us.
Nice! You will be rewarded in the long run. We are entering the "silly" zone, call it tax loss selling, call it MMs wanting to show low exposure to oil, call it forced selling from hedge funds, plus shorting pressure. Right now, you are having a field day betting on the downside and I believe we could go and test the 2s but in the long-run, this stock will be back up and in the meantime, the dividend is nice.
Dying as a long...but still here, barely standing.
The chart looks god awful...if oil recovers to the 70s and 80s (two year window) then this will turn out to be a MASSIVE buying opportunity. But in the falling knife scenario that is unfolding, nobody wants it.
The acquisition of ATHL is perceived as a complete blunder by the market. As I said in a post weeks ago, that purchase might turn out OK in three to five years but right now, management looks terrible because of it. And that perception is reinforced every day that oil goes lower. What Shuttles described as "annoying" is turning out to be really annoying.
My opinion is still the following: ECA in the shed until oil recovers somewhat. Long term still solid.