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
I own both AR and MHR, so I get presentation updates for both. Sometimes I find myself getting really ticked off that GE's promises and representations do not always pan out. Other times, I am telling myself to just relax, it's all about the end game and the best evidence to support the "relax approach" is a comparison of AR's acreage chart at page 9 of its most recent presentation to MHR's acreage chart on page 15 of its March presentation. We know MHR has super acreage with both Marcellus and Utica potential along Ohio River and in Tyler County WVA, and a lot of good acreage at some other developed pads, but the two wild cards are the western Utica acreage (around Farley) and southern Marcellus in Ritchie County, WVa. These are the two areas where most of MHRs undeveloped acreage still needs to be proven up and I like what the AR acreage chart shows with respect to each. First, Farley acreage is right at the edge of what AR considers the Utica Core and the MHR acreage to the NW of Farley appears within what AR considers the Utica Fairway. And second, turning to Ritchie County, the AR chart shows MHRs acreage right at the edge of the Marcellus Fairway and less than 1/2 the distance across the county from the Marcellus Core.
The bottom line is MHR may not be producing much from either of these big outlier acreage areas, but both of those acreage packages should be strong based on the acreage chart of the largest player in the both areas. So, while I am not happy as we languish here with a low PPS, I think MHR is still a good story for the long term holder. Just my two cents. Lex
Cuda: I agree with the first paragraph of this post re the balance sheet, but cannot agree with your last statement re premium because the premium we are talking about is relative to a deal done a year ago with significantly lower pipeline values. Moreover, the pipeline is pre-IPO for only another few months. Heck, these two factors are EXACTLY why it makes sense to pay, and for MHR to receive, a premium. Just my two cent reaction to your note. Lex
I agree that the pipeline volume upswing is great, but I just do not understand the press release referring to a possible sale of "less than 8%" interest for $75m. If they said it is 7.5% for $75m (keeping extrapolated value at $1B) it would be bad enough, but "less than 8% creates impression of a possible "down-round" of equity financing which is never good. Moreover, why would a subsequent sale not be an "up-round" where the percentage sold captures MORE value than prior rounds -- particularly when pipeline volumes seem to be exploding. Something doesn't sound right here. Any idea what I am missing that might explain this odd language in today's announcement? Lex
Rustbelt: I had to laugh when I saw your reference to Strunk & White. Boy that took me back a few years to my old law school days when the S&W handbook was considered the bible of proper usage. I love it! Nice retort on your part. Lex
I am a loyal long, but truth be told, the $9 figure you are relying on is GE's estimates and each time he has sold assets he sells them for less than his presentation estimates. Moreover, and here is the big point, the values you are looking at involve mid-2014 pricing before the commodities market fell by nearly 50%. the $9 value might work out in the long run if prices rebound, but right now that figure needs to be discounted by a significant percentage. Several days a Seeking Alpha writer (not vouching for him) suggested the true NAV over debt right now is more like $4 a share. I am not saying he correctly discounted the NAV, only that the logic in his discounting by some significant percentage makes sense. GLTA longs. lex
Cimarron spotted this article and posted the link but the topic has been deleted. I am reposting because it is a very good article with a lot of perspective from a number of top operators.
I find it intriguing that 20% of the capital budget is allotted to additional acreage acquisitions, which are likely cheaper this year allowing MHR to get more bang for its buck as it attempts to put together top quality acreage for eventual company sale. GE is certainly not backing off his long term view of the company if he is talking about acquiring more acreage in the face of high debt management.
I certainly like the idea of a JV to help further delineate the acreage in the three Ohio counties, but I am not sure how they are going to go about the same task in Ritchie County, WV without drilling new wells. Perhaps the delineation there will be attributable to (a) the Stevens Pad Eureka Hunter extension (Jan presentation has Stephens Unit well coming online on April 1 but that is probably way early), and (b) other producers in the area tapping into this line and establishing quality of surrounding acreage. That might be a lot of speculation on my part, but realize that Ritchie County is a GIANT wildcard for MHR has a lot of acreage down there and if THAT acreage is good that far south in the play, the GE has hit his home run as a lot of that acreage was picked up very cheaply. GLTA longs. Lex
Jms: you might be spot on with the Stalder comment as GE said during his Feb 3 presentation Stalder hookup was about 10 days out. I take it the bad weather in the NE is helping out as well. Finally, the DJ Columbia pipeline MLP IPO set a record yesterday for the largest mlp ipo -- one of three $1B+ pipeline IPOs since October.
Railsnstock: MHR needs to "pause the growth and start stock buy backs"??? Seriously??? With MHR's debt? What planet do you call home?
Why would it go up so much in one day without a major announcement? That said, with over 1 million shares traded in the first 30 minutes, maybe you are on to something.....
For those of you who did not listen in, Gary's presentation was pretty much a mirror image of his last conference presentation and how MHR will double production by quarter this year compared to each quarter of last year without expending significant money. To the extent there was new information, only four things struck a cord with me.
First, he relayed the Stalder wells are still about 10 days out from being brought onto production.
Second, whereas I did not recall him discussing any amount for this year's budget on the last call, he said MHR had not determined its budget for 2015 but mentioned it might be around $100m.
Third he commented again about the anticipated JV for development of the Ohio Utica acreage and said he hoped to announce something in March. Said the response has been strong, but gave no specifics. What he did say that was significant is that one of the three goals of the JV was to create production volumes that would support the pipeline IPO. I did not interpret that to mean a lot of wells had to be drilled and online, but that he was looking to the JV to contribute prospective value and, if that is the case, my guess is the IPO will definitely not be announced until the JV is up and rolling and plans for Utica development announced. As in the IPO may be later this year than originally thought.
Finally, he made a remark about the pipeline being valued around $1B when Morgan Stanley bought in last October, but then made a passing reference to the pipeline's value being about $600m to MHR,. Obviously, GE thinks the value has or will go up a bunch with Stalder coming online and taking throughput from 400k a day to 500k a day and he is starting to "sell" a higher pipeline value of at least $1.2B to the investment community.
Those were my reactions. Hopefully I heard things correctly, but I admit I was doing two things at once. Would love to hear the reactions of others. Lex.
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