DT: Now the view is that PPS "could be over $40 a share"??? Double WOW.
In 10 years, who knows? But I was simply talking about Upton's current estimate, which I think is irrational. Upton wants to note Utica reserves have not been accounted for, but while not booked as part of a formal reserve report, GE did account for them in his presentation, which is the reason GE included Utica wet and Utica dry high acreage values (if they had no reserves to speak of he would have valued them like the KY acreage). And your comment on the 800m of reserves is meaningless in today's marketplace with average production potential of around15% oil in place for proved reserves (up to perhaps 30% with best case secondary recovery techniques). Heck, most analysts disregard both probable and possible reserves as too speculative to consider and you want to buy into a stock price based on GE's "contingent reserves?" That oil might be "out there" but no one has the current technology to produce it.
All I am suggesting is posters who usually make sound observations throw their own credibility under the bus whey they get to hyper pumping. I have read some of Upton's previous posts and find most based (to at least some significant degree) upon reason, but --- like I said -- why impugn your own credibility by throwing that reason out the door and spouting off about PPS 3x or 4x what MANAGEMENT is telling you? Just my two cents. I still consider us on the same side here as loyal longs. Have a good day and glad to see PPS is up as we speak. GL, Lex
Upton: Wow. GE puts out a presentation providing a detailed spreadsheet indicating the value of the company's assets, in management's view, is between 8 and 13.50 a share net of debt, but Upton says $22.80 to $30. Wonder who has better insight?
While I appreciate MHR needs to book Utica reserves and the pipeline is rising in value, not one analyst is estimating positive earnings for 2014 and yet Upton proclaims current value is three times current PPS. Why impugn your own credibility with such an outrageous statement?
I love these message boards. I just looked back to see if Ronharv responded to my note and see someone gave me a thumbs down, when the only thing I really offered to any other reader was a realistic suggestion as to how to make a 100% return on an investment in Linn within the next 15 months. And that troubled someone? There really are a bunch of numbnuts on these boards.....
I fancy myself a leap spread buyer more than simply a leap call buyer, as I rarely buy calls without selling an upper leg in order to limit risk and increase my chances for significant gains. My approach is to enter relatively conservative spreads with lower legs clearly in the money, a break even point below the current trading price, and what I consider a high probability to realize max returns on the back end. For example, I have already have Jan 2015 spreads in place for MHR between 5/10 and KOG 10/15 at just below and just above $2 a share respectively to make $5 in a year, with both spreads in the money from Day 1 and a hopeful 150% return on the back end. Looking at today's prices, if I were going to consider Linn Leaps, I would enter a 23/28 spread for about $5.20 cost and $2.85 sell = an approx. $2.35 net making your break even 25.35 ($1.35 in the money to begin with) and a 100% return after commissions if we just get back to $28 -- a price Linn was at only yesterday. I know I might be leaving more upside on the table by not looking at 23/30, but simply shooting for a "conservative 100% return" (IMO not an oxymoron) is just fine and I rarely lose principal adopting that approach. Lex
Seems to me that today's decline has resulted in some attractive Spring 2014 prices including selling the April 23s for $2.10 (giving you a $20.90 buy in price if put to).
Everyone has their own view of valuation if the BRY deal doesnt go through, but I think LINE cutting its distribution by 25% to address all their issues at once is a worst case scenario. Cutting the distribution by 25%, makes the payout $2.18, which is an 8% yield on a $27 share price (more in accord with long term payouts) and shifts LINE to a great coverage ratio. Linn has estimated current DCF at .95 coverage, which is $2.75 annually against its current $2.9 payout. Reduce the payout to $2.18 and suddenly the same income results in a 1.26 coverage ratio and things are "back in normal balance" and they restart the model progression. IMO this is why the shares will not drop again to the $20 or $22 range as that is overkill given even the weak current coverage ratio. That is why I fully believe selling puts at this level is simply putting a few bucks in your pocket. Lex
Mt. Lassen: I see you got 4 quick thumbs down on this post, but practically speaking, it makes sense. Would it be a big negative in the short term? Of course. However, cutting the distribution by 25%, makes the payout $2.18, which is an 8% yield on a $27 share price (more in accord with long term payouts) and shifts LINE to a great coverage ratio. As RLP has noted Linn has estimated current DCF at .95 coverage, which is $2.75 annually against its current $2.9 payout. Reduce the payout to $2.18 and suddenly the same income results in a 1.26 coverage ratio and things are "back in normal balance" and they restart the model progression. IMO this is why the shares will not drop again to the $20 or $22 range as that is overkill given even the weak current coverage ratio. Just my two cents. Lex
$18 by next Friday? Seriously? When they have already announced their production numbers and, as Eweinert noted, we already have a handle on revenue numbers? You are now confirmed as an idiot.
I am a loyal long, but posts like yours are simply nonsense.
Nomo: Not arguing at all, just trying to assist Slab and others on increasing the probability of profiting on options by focusing on best return and comparatively low risk trades. Heck, if you have strong convictions MHR will be above $10 in 15 months (and I agree that is a very reasonable expectation), then you may want to consider buying yhe 5.50s and sell the 10s against them for about $1.50 to make a $4.50 spread. Breakeven is $7 (well below your current break even and even the current price) and you triple your money (1.5 invested to make $4.5) if the trade makes. Less risk and significantly more upside to you.
Side note from someone who has made a bunch on options, but lost his aQQ a few times along the way as well. The problem is your expectations can be dashed quickly with events you were/are not counting on -- such as last years big MHR equity offer in May -- that take your trade off track, which is why I have learned to "back off" from making super aggressive trades. But the 5.5/10 spread I propose above is NOT super aggressive since the BE is below the current price, so you make money even if the PPS goes no where.
Note that my proposed leap option approach is exactly what I did this time last year (nov 12) when I started 200 contract spreads in both a $2.5/7.5 and $5/7.5 LEAP spreads that I am counting on hitting in January 14 (they got there the other day when the PPS got above $7.5; however the advance 7.5s have too much TVA to cash in early. My guess is I will either let they play out entirely come January or close out several weeks early when most of the time value has decayed. GLuck, Lex
Slab: I agree it is tough to make money on long calls unless you are fortunate to buy just before a big run up. since MHR has already had a big run up, and has current "positive press" to increase the cost of long options, it will be hard (IMO) to make a lot of money on calls alone going forward.
With the option premiums as high as they are on MHR, your best long bet (again IMO) is a spread so you can sell some premium to offset your acquisition costs. Nomo is smart to play ITM LEAP options so he starts with generally lower risk and his strategy has time to play out and he gets LTCG treatment if he holds until next Nov, but he is still paying a lot of TVA. Sounds like his 5s cost him about $2.70 so his breakeven is $7.70 in 15 months and the stock needs to get to $10.40 for him to double his money. Realize you can make almost the same return on a $5 to 7.50 spread with a breakeven around $6.30 (well below today's price) and what should be an easily attainable $7.50 short leg price that is $.20 BELOW Nomo's break even on his current trade. Buy the 5s at around $2.92 and sell the $7.5s for around $1.62 and cost is $1.30 against a $2.5 max value = 93% return and all the stock has to do is go back above the $7.50 that it was selling for only a few days ago. Put together a 5/7.5 spread and make 90% in a year at $7.50 pps. Buy shares at $7.20 and you need the shares to get to $13.70 to make the same return. Buy Nomos $5 calls and he needs the shares to get to $10.15 for an equivalent return. You reduce SO MUCH RISK by selling some time value against a long call position. Just some thoughts. Lex
Thanks Masayo. Obviously, I did not consider the 3 line approach, which seemingly explains it all. I consider myself a very quick study on most topics, but this was just a brain freeze on my part. Thanks for the quick hit upside the head with a 2 x 4 to bring me to my senses. Have a great day and thanks. Lex
could those of you on the board familiar with gas transportation rates explain what I am missing?
During the July 9 conference, GE was asked a question re what rates EH was receiving for transporting on the EH pipeline and he said between 28 and 54 cents. I just looked at some transportation tariffs and saw one of CrossTex's deals priced around $,30 per mmbtu. What I don't understand is how the EH pipeline could possibly have $125m of annual ebitda. Please help correct my math or tell me what is missing because if the compressed capacity of the EH system is 350,000 a day, I assume you could count on utilizing about 330,0000 a day x 365 days x sample price of .35, which should generate $42,157,500 in revenue. So how does GE get math that takes the number to $125 million in revenue? I am missing something, but I don't know what. please help as this is one part of the business I don't have a very good handle on. thanks in advance for your help. Lex
I was intrigued with yesterday's telephone conference discussion on the decision to postpone the sale of the EH line and GE's comments about the PL ebitda likely going from $50m a year in 2014 to $125m a year thereafter. I trust the major driver in that increase is the addition of compression with the near doubling of capacity from 200k to 350k a day in throughput. I recalled from a previous conference call that someone asked GE how he arrived at his previous $1b estimate of value and I just went back and replayed the July 9 call near the end when GE answered a question indicating his $1B value estimate was "based on a $50m ebitda with a 20-25 multiple."
I don't know if the 20 to 25 multiple is a fair expectation or not. Perhaps some other posters have more info on area pipeline sales and can opine on that potential. But, if you assume GE is puffing on both fronts and discount the multiple and ebitda estimate by 20% each, the math would work out as 16x $100m or $1.6B in value with MHRs interest going from 600m to $960m simply based on delaying the sale for 1 year. Obviously, if either or both of the multiple and ebitda numbers are higher, then MHRs proceeds go up big time with a 20x $125m ebitda value equal to $2.5B with $1.5B going to MHR. Either way, the decision to hold off appears to be a no-brainer financially and having the "decisional control" over where the pipeline goes over the interim year is simply icing on the cake. Lex
I think there have been a number of companies who simply shied away from making releases during the govt shutdown and (IMO) that is part of the reason we have heard little from KOG in the form of press releases. That said, I trust a lot of positive information is "leaking out" through back channels and that has resulted in the strong performance over the last month. I think the next Operations conf call is going to be a blockbuster with enhanced production and great news on updated pilot program results, which will assuredly lead to massive reserve upgrades in EOY report. Lex
Sorry Slab, I do not recall what was said other than the comment about the 9 mile proximity to the Tippens well that Eureka Hunter is carrying to market and its 20k equipment-limited flow rate that GE guessed might be a 30k+ a day potential. Don't know how he got his higher guesstimate, but he threw out the 30k figure.
I was surprised no one asking Q asked what line MHR planned to use to bring Farley production to market. I notice that slide 29 (?) has a TCO line that looks like it is only a few miles from the pad, so maybe that is the short term solution pending development of the Beverly extension.
My take on most important subjects:
First is that pipeline sale plans are off. GE said he has a billion dollar bid, but thinks it is worth more than that, so wants to await fill up, which should be late next year. Said PL ebitda would go from $50m next year to $125m the year after, so it make sense to hold off selling for now. Moreover, MHR keeps control over line while focusing its expansion to their own properties. Second, is the new slides in the presentation with 12k anticipated production coming on line in November and December. Should take MHR from current 16k+ of production above the estimated $25k eoy projection. Third, is Farley well is on 9th frack stage and apparently back on track for completion and testing with GE hoping to have test results by time of operational conference call early next month. No need to rest well given carbonate (not shale) production zone. Fourth, continuing to make divestitures to help fund ongoing development and focus on core operations. Fifth, Divide County Ambrose wells are performing well and will result in reserve growth given high EUR models. Sixth, results from PDC's Garvin well in close proximity to Farley should be out soon, and Tippens well, which is 9 miles from Stalder is 20k a day gas well based on equipment limits (and could have much higher potential), so other local well results should bode well for MHR. Those are most of the high points as I understood them. Lex
the new presentation for October has some positive pieces, but it starts with a statement that current production is around 16.5k a day. I looked back and the June presentation had 17k a day as its current estimate. Why no significant increase in four months? --particularly when most of the Bakken production increases are third quarter events (at least for other companies) given lots of well completions following a lot of drilling during the cold weather season. This is one bothersome part of the presentation to me; anyone have ideas as to why we aren't a bit higher? Lex
Upton: You should be shuttering now given the out of control spending of this administration and the continued build up of government and additional of yet more entitlements. While I agree that Cruz is a borderline idiot based on his approach, at least there are some people that realize America is in deep stuff if they don't reverse some of the current policies and, in the absence of push-back, there is not even dialogue on that subject. Kicking the can down the road has got to stop. We need more private sector jobs and, unfortunately, Obamacare provides a major disincentive for small company employers. It is sad that the republicans are taking such a negative hit to their image for at least trying to stop the nonsense, with the flip side being the Dems just get more and more support from the recipients of the entitlements. We NEED more balance or we all are going to have a bad future to deal with -- so start your shuttering now.
Good to hear from you again, David. Please lurk a bit more and let us hear from you when you do. Nice catch on slide 42. I would love to hear/learn the precise mix and hope at least a fair amount is not dry gas; however, even with a lot of gas, it appears the Stalder pad is well located for the next 10 to 15 wells they intend to drill there. Lex