Sammc: The JV figures do not represent pure liquidity. Looking at some past JV deals done in the area, the largest of which (I think) was the big one Chesapeake and EVEP did with total, the cash component of these deals is around 7-8%. For example, EVEP got $90m at closing for contributing 77,000 acres to the JV, which is a bit less that $1200 an acre of cash on a deal valued at $15,000 an acre at the time. Assuming, MHR did a $500m deal with the Total JV metrics, it would mean MHR would receive around $40m of cash at closing. Who knows what GE will negotiate, but those are the metrics of the Total sale and the point again is simply that the stated value of the deal -- $500m -- is not a cash figure. GLTA Longs. Lex
Slab: I agree with the general assessment provided GE uses at LEAST 60% of proceeds to reduce debt and/or take out some of the preferred as MHR just has to reduce its cost of capital. Now what would really make the stock move is to couple the sale with a large JV announcement as the combination would turn the company from a high risk play over to the other end of the spectrum as a low risk play. Reduce debt by over 50%, use someone else's money to ramp up development in Ohio, and let MHR develop its stacked acreage in both the Utica and Marcellus using lower cost pad drilling at Stalder, Stewart Winland, and another Tyler county pad. Selling EHP is a great first move, but boy would it be fun to see a two-step move. Just my two cents. Lex
One last thought. And sadly, the question then becomes whether the $4.50 value per share figure is too high since it is based on "per acre values" of $7.5k, $10k and $12.5k when those are values taken from acreage purchases made in 2013 and 2014 BEFORE the collapse of commodity prices. Stated otherwise, should the the $4.50 calculation be discounted by another 10 or 20 cents based on overly optimistic assumed acreage values?
I have to admit, I am a loyal long but I have never looked at some of the MHR presentation calculations like this before and I find it disheartening. Lex
Energy Investor and BQdoo:
Confusing? You bet. Apparent double counting by GE? On several levels the best I can tell. First, is the approx 50k of acreage prospective to both Marcellus and Utica. That is acreage where MHR has stacked plays. Second, is the overlap between proved reserves and overstated undeveloped acreage counts. Do me a favor and respond to my argument that the slide 49 figures should have a NAV more like $4.50 a share after adjusting for double counts..
Based on the slide 40 NAV presentation, GE implies that stacked play acreage sells for stacked play value (i.e., should stacked play acreage sell for $20,000 per acre as GE implies with his slide 49 presentation values?), since both acreage counts are accorded full value. Frankly, this appears doubtful to me, but that is one apparent double count.
Second is undeveloped acreage. Slide 11 tells the public the number is 80,500 and slide 49 tells the public it is 166k (over double!!!!).. Take the undeveloped acreage figures from slide 11 (20,368 in M and 60,210 in U), and multiply those values by the assumed low acreage prices in slide 49 (7,500 for M average the U values at 11,250, and the slide 11 undeveloped acreage values total $830m vs the $1.7B figure shown on slide 49 with the only explanation I know for any differential is one set of undeveloped acreage numbers are as of 1.31.15 whereas the other is 12.31.14.
Assume slide 49's 909m value figure for reserves, plus 830m for adjusted undeveloped M and U acreage, plus 120m for other acreage, plus 460m for pipeline/alpha, less 1.4B for debt and preferred, and the adjusted NAV on slide 49 drops to $4.60 a share. And then drop that number by just a dime based on the assumption that double stacked acreage does NOT get full double value, and adjusted slide 49 values drop to $4.50 a share. Please check my math and let me know your reaction. thanks, Lex
MHR press release says unidentified independent oil and gas company with continuous acreage interests. Antero presentations have maps showing operator interests in Tyler County and one of those maps has a small MHR acreage patch next door to Consol/Noble and EQT, so I trust one of these outfits was the likely buyer. Not sure if it makes any difference, although I recall some posters on the board have suggested EQT might be a candidate to buy MHR out entirely.... Just passing along my observation as to who the buyer might be....
Hamrick: Agreed. I cannot imagine GE's bargaining leverage being any lower than the past couple days trying to cut this deal with a liquidity deadline only 3 days post closing. Like you, just glad to see the deal get done and hope for better news to come....
Cuda: I trust you are right, but barely..... GE survives another quarter.
When is the next liquidity requirement deadline and how much must GE raise to keep MHR afloat? Please let us know if you have the information handy and thsnks in advance for your input. Lex
I appreciate this is non-core acreage with lease expiration issues, but once again GE sells acreage at the low end (barely) of his projected estimate of value. The "asset value charts" in monthly presentations show Utica and Marcellus values of $10,000 at the low end of the range (Of course, these valuations are all based on sales of acreage back in 2013 and 2014 before price collapses -- but that doesn't stop Gary from using them without adjustment). . Then in his "liquidity initiatives" presentation page, GE claims the value of the anticipated transaction is between $40m and $60m and GE BARELY breaks into the value range with a $40.8m sale and that is pre-adjustments, which may well take the net sale out of the range. $7,800 an acre is probably a lot more than he paid for the acreage, but just another example of GE coming up short on his value estimates. Sorry to see this pattern, but I cannot say it was unexpected. Lex
Slides 10 and 20 are worth a look for long term MHR investors. Antero is the leader in developing the Appalachian plays and Slide 10 shows it has concentrated acreage in the same counties as MHR as accumulated a lot of its acreage. Moreover, slide 20 ranks the highest return plays throughout the country and 4 of the top 7 are focus areas for Antero involving much of the same acreage as MHR. In combination, the two slides should bode well for MHR and its potential JV partner in the Utica. GLuck to the longs. Lex