Lurking around and, unfortunately, averaging down a few times. Should be an interesting 12 months ahead of us as GE hunkers down and tries to ride out his debt and liquidity situation. I think he is wise to turn off the cash burn and focus on the Ohio joint venture. Interested to see how the pipeline situation plays out. GLTA
PDC announcement came out and PDC is taking an impairment charge on its acreage by Farley. I hope MHR does not have to do this also. It does not appear the write down is related to abandonment of development plans, just prices....
Utica Non-Cash Impairment
The Company expects in its fourth quarter 2014 financial reporting to incur a non-cash impairment of between $150 and $170 million related to its Utica shale assets in southeast Ohio. This impairment is due to low commodity prices and large natural gas differentials in Appalachian Basin and includes both PUD reclassifications to probable related to a change in the Utica development plan and a write down of a portion of its leasehold. The Company remains committed to its Utica Shale resource in the condensate and wet gas windows.
Good point about JV drilling -- they need it big time. Both because they have limited liquidity to drill and they have a LOT of undeveloped acreage that needs to be HBP in order to sell at a decent value.
I think the debt with preferred stock is a bit higher than $1b and they only have 200m shares right? I think the math probably works out around the same either way.
At least the 8k filed yesterday indicated no changes in borrowing facilities. Much better than them being lowered at a bad time. But they really needed an increase and it does not appear they got. Will be interesting to see the PR when it comes out later today. Reserves way up but value of reserves about the same due to commodity price decreases?
it is the general partner of the master limited partnership and it is a MHR affiliate giving GE a miniscule (sp?) yet incredibly significant, ownership interest in the pipeline to control its development. He may have given up control over the prospective sale of the pipeline, but he has maintained the important development control. The problem is, in the big picture, GE has nothing left to leverage. He has cut his control interest to the nub.....
Ben: Don't mean to be overly critical, but your comment about hedged companies will pump as much as possible doesn't make sense if the inference is only hedged companies will do this. Hedged companies will certainly make sure they pump enough to satisfy their hedge volumes, but after that hedging is a non factor in the decision to produce so your comment seems out of place.
That said, I agree that supply will drop after companies start pulling back capex, which will come as soon as wells already drilled or committed to are drilled. My guess is only those with bullet proof liquidity and/or a NEED to drill to hold production are the only ones that will be pumping as much as possible next year, period.
Cuda: Can you remind me what entity owns the rest of EH Holdings LLC? it appears that MS now owns slightly more of the pipeline than MHR, but there is 1.56% ownership not stated in this release, which I trust still gives GE and MHR 50% control of decision making. What MHR affiliate owns that interest, if any?
JMS: I hope you are right, but the Ohio regulatory rep has said there will be a "full investigation" and who knows how long that will take.
That said, am I correct in thinking the reason they were bringing this well back on to production is they are done with the other three wells and all four will be brought on soon?
I would like to think you are right, but the estimates of Rockpile and Calber value were based on day rates and transportation charges folks were willing to pay with higher price oil. Now the demand for both service company offerings -- particularly the fourth and fifth Rockpile spreads -- has fallen and the former projected values will need to be adjusted downward (and I am afraid the adjustment might be significant). That said, TPLM has two big things going for it -- low debt and the ability to use nearly all of Rockpile and Caliber to reduce its own drilling costs. Lex
HT: what do you mean by your statement that GE just pledged 2 million of his own shares for that very purpose? What is the purpose an\d how did he pledge his shares? Thanks for explaining......
Foolfinder: Is it really a stupid post when the $9 figure is thrown out there without referencing a time frame? IMO Mhr WILL be taken out for more than $9 -- and then some -- but it wont happen for another year or two because current deficit spending is too high and take outs typically don't happen for E&P companies until ebitdax nears capex. But MHRs assets are worth more than $9 and growing in value, so it will happen eventually making the prior post not so stupid as you suggest. Lex
Awesome well results, particularly since all three of the Marcellus wells are 45%+ liquids, which greatly enhances associated sales revenues from the production! Plus, production on the pipeline goes up and, hopefully, EHP doesnt have issues moving the liquids because of the giant dry gas flow from the Utica well.
Now, if we can just get some air permits and get all the high test rate wells into ongoing production mode. Very good news......
I do not claim to be one who is "in the know;" however, to address your inquiry, GE's slide 56 in the October presentation puts the value between $3.195B and $3.874B. The average of those figures is just shy of $3.4B.
On one hand, GE has historically failed to realize even his low side estimates on liquidations, so your $3b estimate may be spot on. On the other hand, the midpoint of GE's Utica acreage values is not far off from the CHK $13,000 an acre price, so maybe his low end value of about $3.2B is a fair number. Assuming the $3.2B figure to be correct, slide 56 puts the NAV per share net of debt at $9.38.
Just a few observations based on the presentation, and here's hoping GE is right with his values and our share price gets back up above $9 in the coming year. Lex
JMS: Good point about adding the Bakken to my pipeline variance remark as it appears the metric comparison may well have been premised on Marcellus/Utica acreage alone. Thanks, Lex
How does the author of this note reconcile his numbers? If the shares have 40% upside from $4.70 at time of issue, that takes the share price to $6.40. Then in the next sentence he has a has a target price of $10. I like the $10 more, but taking his asset sale metrics at face value in light of the current PPS, the target appears 50% higher than his implied upside calculation. I trust the difference is explained by the pipeline since the implied upside is premised only on production and acreage.
A takeover is more likely when Ebitdax gets close to equaling or exceeding capex. That is the litmus test because it is at that point that the acquirer doesnt have to issue a bunch of equity or take on debt to fund further expansion -- they just pay a fair price and take on the benefits of self-funded upside. See BEXP and KOG for examples.
HT: While I certainly agree with your overall sentiments, selling the Bakken is a mixed-bag from the perspective of cash flow, which MHR needs so desperately. Remember that our 5000 a day of Bakken generates a royalty-adjusted $400k or so a day in revenue, which is 100,000 mcf a day of dry Utica gas on a sustained basis, or around 60,000 mcf a day with MHRs level of liquids. Yes selling Bakken creates a large liquidity event and helps to focus the business, but revenues will fall dramatically once sold without a lot of new -- and sustained -- production. What MHR really needs is a slew of additional wells on the pipeline to jack up future EBITDA projections so they can monetize the pipeline at a high Ebitda multiple..... Now if THAT happens the shorts will really be scrambling. Just my two cents. Lex