I am not sure what you mean by "too much weight on this." Massayo and I have just commented on the presentation data changing as to what wells would be on line when. Just a comment on balanced perspective.....
Long term, I don't know if any of this is really significant at all, but it is going to fuel the naysayers who complain that GE tells the market one grandiose story after another and sometimes they are simply not accurate (like this year's exit rate), which leads analysts with obsessions over modeling to doubt rather than upgrade, and all I am saying is "it certainly doesn't help that the story has changed so rapidly in apparently significantly negative fashion." I know I would personally benefit, with significant Jan options, if the news were "MHR met or exceeded projections" vs what is clearly going to happen (IMO).
Masayo: I agree and noted this a few days ago. Heck, the presentation has around 10 wells coming on -- coincidentally -- on Dec 31 and you know 10 wells are not going to come on line on New Year's Eve (particularly after this heavy winter storm we are now getting through). Q1 may have them all on line, but I think we are going to come up significantly short for the year end exit rate. Sure hope I am wrong, but I doubt it given the content of the current presentation that also failed to show a significant increase in current production over November. GL, Lex
Ruby: Interesting suggestion on the LINE Jan 16 calls at $32, particularly if you consider financing them with $20 puts that are selling around $3 a share. Indeed, your note makes me think it may be wise to put together a 3 legged spread seeking over a 26x bagger with what I consider fairly limited risk with a 100% call position financed with a 50% put position.
Looking at the Jan 16 option prices, looks like you could buy 100 contracts at the 32 strike for around $2.80 or $28,000, then sell 100 contracts at the $40 strike for $1.00, and have a net investment of $18,000. Then sell only 50 put contracts at $20 for $3 = $15,000 and the net investment is $3000 to make $80,000 if shares move north of $40 as you suggest. Come January 2016, if PPS is north of $20, your max loss is $3000 come expiry, allowing for some very sizeable downside protection and with a put price $11 below current market, the margin hit is not tremendous. If the PPS is above $32, each dollar is $10,000 less your $3000 outlay. Even at $35, you have a 10x bagger.
I just might have to follow through on this one after playing with a few other alternatives.... Thanks for prompting my consideration of this possible play. Lex
Seriously Wintoat???/ "people who support the republican pary may as well put the chinese flag up on their lawn?????" How can anyone EVER take ANYTHING you ever say again seriously? What a moronic comment. Good thing these boards have an ignore selection; off you go so I never have to waste my time reading your inane remarks again.
Upton. You're a clown because your retorts often dont have anything to do with the message you reply to. Rather, you simply offer more mental meanderings frequently altogether off point. For example, you asked how the ACA was doing in Texas the other day and I offered a cogent response about how over 30 percent of franchise employers are cutting labor in response to the law -- just think how big that impact is -- only to have you retort with "well then why dont they give medicaid to the poor?" I read your note and shook my head like my labradors shake their ears in the morning, thinking WHAT??? This guy is clueless. What is he talking about? I then realized that is your approach -- never acknowledge the logic of any other viewpoint on anything, just respond with another inane remark. Your problem with the "conservatives" on the board is they typically respond with logic and you dont want to discuss a point, you just want to spout views without substance. Lex
Where are you confused? I dont know all the ways, but your math conveniently ignores decline rates, assumes an above market price, assumes all production is oil, and fails to take into account net revenue interest just for starters. I dont claim to know all the variables here, but most horizontal wells have pretty high costs and require significant production for meaningful IRRs. Adjust your math to look at this situation like KOG and other horizontal drillers, apply a 60% first year decline rate like most shale plays, and a low production margin per bop, and I think the math is more like 140 bopd x 365 x $40 revenue over cost margin = $2m of revenue for a well that likely costs more than $2m to drill. Thus, my suggestion that the well would appear borderline uneconomical. Admittedly, my figures might be off a bit, but they are a quantum leap closer to reality than your $81m analysis. Sure you can make some profit on wells like this as it produces 100 bopd or less for years, but the low rate of return will mean other opportunties will be pursued and this acreage will have limited value assuming the leased acreage is held by production rather than being lost. Hopefully subsequent well tests will be better, and a better potential marker for for BBEP; my reaction was simply that this Rex well did not get me excited. Lex
Upton: The ACA is not working well in Texas, or anywhere for that matter. Medical providers don't like it and are reducing care options; everyone who pays for insurance regularly is having their rates go up, and the Dallas Bus Journal reported yesterday that "more than 30 percent of franchise businesses have reduced worker hours because of the law" and that refers to all states (not just Texas). Care goes down, rates go up, and low end workers bear the worst brunt of it by losing work -- but, to use your words, "who cares about them?" Hey....
The irony of it all is the misnomer "Affordable" in the name of the Act, when most of the people whom the law is intended to help are suffering as a result of its implementation. Quite rich irony wouldn't you say?
He cannot count them as part of the exit rate if they are not producing and I don't think 10 wells are magically going to start producing on New Year's Eve day no less.....
Rogan: You are absolutely right. there is no way MHR is going to hit their targeted exit rate given the fact more of the anticipated fourth quarter wells are not already on line. the presentation pushes about 10 wells to 12/21 and another 10 wells to 12/31. Once again, GE tells one story and the reality is simply that things do not happen as quickly as he represents they will. I am not suggesting the results will not ultimately happen, but looking at the revised chart and thinking it is overstated, I suspect we might be lucky to exit the 1st quarter of next year at the 23k to 25k exit rate for this quarter that GE has been repeating in all his presentations.
Another "killer" (dare I say) misrepresentation is the slide indicating there will be 13-16 Stalder pad wells drilled "in the next 18 months." It is simply not going to happen given the lack of progress on any well from this pad to date and he has been making this representation form several months already.
Notice also that during a recent presentation GE remarked about possibly having a second Farley pad well drilled and tested by year end and that well is now scheduled for late-February. I don't think this is that big a deal since the pipeline connection is not ready and the company wants to avoid issues with this well, but it is simply another example of GE changing his story because his previous reps on timing of things are too ambitious.
The bottom line for me is MHR will do well in 2014, but not at the pace represented in the past few presentations. Lex
Or don't let them go and roll the calls forward the day before expiration for minimal expense (usually a nickel)
Hopefully, it is not a near worthless 97000 acres because the Rex horizontal well results appear uneconomic, or borderline so.
Thank you for the detailed response. Not sure what the incentive is for those currently holding the "piggish incentives" to give them up other than reducing the impediment to further PPS increases on their other holdings, but maybe that is a big enough reason to get something done.
I picked up 1500 units a few weeks ago just north of the current PPS, but think I will just leave it at that. Relatedly, I cant believe BBEP has not run up further post-SPO given its healthy coverage and reduced leverage. Thanks again for your time and insight. Lex
Win: Hope you are right about new "goodies" coming with next week's Wells Fargo conf and updated presentation. Seems a reasonable bet to me. I wonder if some advance news leakage is the reason for today's advance. GL, Lex
Liza: I dont think anyone gets deprived of anything. Yes, a unitholder has to hold his shares to get the "third-third" of the previous quarters distribution, but, by the same logic, the unitholder who sells a month early ACQUIRES an extra payment that he/she would not get because the record date for the "first third" is accelerated by a month. As a result, your "lifetime of the investment" argument cuts both ways and a unitholder selling after the first of three distributions for the prior quarter is arguably better off having received an EXTRA payment he/she would not have received under the prior arrangement. Like Ruby suggests, it is no big deal in the big picture, but I think your rationale is flawed to the extent you consider one side of the coin without the other. Lex
Ruby: I have read your posts about the need to restructure, but I don't recall you ever discussing HOW the restructuring might be accomplished. Your thoughts on that given the preferreds have already been issued based on offer terms that were relied upon by the purchasers of those shares? I mean, how can they change things now? -- make some sort of tender to the current preferred holders that accelerates a portion of their LT expected benefits into the short term while eliminating a chunk of the LT benefits? Can management afford to do something like that given the current PPS and over the top yield? I am interested to hear your thoughts. Lex
No doubling up. In fact, some posters have suggested on other boards that the company saves a month of distributions (that the unitholders lose) when you shift to monthly distributions, but I think that is horse hockey because you have to distort the period considered by the company in making the distributions. Since the distributions are applicable to the prior quarter's financials, the end result of going to a monthly basis is simply that you get the first third of the expected payment a month early, and the last third a month late. Yes, a unit holder may have to hold his shares an extra month to get "his" third-third, but that amount is simply paid to the buyer of the shares, so there is no saving a month of distributions at the corporate level. -Lex
There are so many HK supporters who think Floyd is going to take them to promised land, I think it is a good bet that PPS bounces every few months, but debt is pretty damn overwhelming with near $300m carrying costs. I bought 5k at $4 thinking it couldn't go any lower and see what I know. That said, if it bounces to $5 or so, I may be gone.....
As for the Jan 16 5s, you might have a decent idea, but if it were me, I would make a more conservative play and buy a $3 to $7 spread at $1.10 or so. Looks like you can buy the $3s at 1.85 and sell the 7s around .75. Breakeven is $4.10 and you make close to a 4-bagger (360%+) if PPS just gets to $7, where it traded several months ago. If you buy the 5s, you have unlimited upside, but you only make about 60% at a PPS of $7. Just my two cents Lex
Not sure what news you want to hear. We have been apprised of the Farley first well situation and GE has indicated MHR hopes to have another Farley and a first Stalder pad Utica well drilled and tested before year end. So late December if you are looking to hear well results.
Replying to myself simply to bring the thread forward to today. Would appreciate any follow up comments from Oilman (and others with information). Thanks in advance.
I read your note re MHR with interest because I always appreciate push back on my views as a test of reason. That said, I don't understand your points. I appreciate part of your gas company remark, as well as the change of story 3 times on sale of the pipeline. But when you say it is fully priced right now, I cannot figure what metrics you are considering when production will be doubling within the next year and reserves will likely explode once Utica gets booked given the placement of acreage as I commented on before. As for pipeline, I don't dispute your remark re these guys are not pipeline guys, but it is ONE key asset that gives them both control of access to marketplace and strong interim returns -- I too was disappointed re no sale at first, but upon reflection it was an excellent decision NOT to sell right now. Another remark I don't understand is your remark about $1B for leases when substantially all acreage has been purchased already, substantially all acreage is HBP on old wells, and no corresponding reserves have been booked. Looking at gpor and antero well numbers, the potential liquid production is outstanding and the IRRs on MHR wells in the area are a heck of lot better than most oil well production. I own a bunch of KOG and love it, but compare the IRRs in their presentations with MHRs so called gas wells and figure out which ones make more money relative to drilling expense. I think your comment on Ormand, the capital guy is misplaced, given his role in the accounting mess and the fact MHR hired TWO big capital guys recently. It is not my intent to argue with you, but I would greatly appreciate why my rationale is misplaced and always appreciate learning from well educated posters like yourself. Pls give me your thoughts on what I am missing and thanks for your time. Lex