No "equivalent bar" on the slide to match the $940m capex bar; rather, just a general note of expectation that Kog hopes to have matching CF in 2014. In contrast, the author of the SA article posted his calculations and related reasoning.
No doubt we are moving in the right direction, but as another poster posted, estimated revenues for the year are $1.25B and it is impossible to generate $940 million of free cash flow on that number given Kogs stated margins and production estimates. I think the SA author is probably right in allowing the inference that mid-summer of next year is a more likely scenario.
I am certainly not trying to soft-bash here, as I am a dedicated long and have three large option spreads working for Sept, Jan 15, and Jan 16. I just think the positive CF inflection point is a few months further down the road than what I had hoped looking at the same slide you are commenting on. Lex
Positive piece re PPS upside potential. More interesting, though, is the free cash flow analysis. Analysis shows KOG generating approximately the same CF as Capex in 2015. Since this a yearly sum, I trust the inflection point where monthly production levels generate enough CF to meet ongoing monthly CAPEX needs will be middle to late summer 2015 (July or August?).
I was hoping to see this happen by the end of 2014, but six months later is not bad. In any event, I think this development bodes well for the January 2016 LEAP options. GLTALs. Lex
Maybe today's decline is just the vagaries of the marketplace, but I suspect it has more to do with the test results of the three new wells being "light" as JMS noted yesterday upon reading the 8K that MHR just filed.
Fastball: Interesting observation. Obviously, there is a related trade off between well cost and production levels, with shorter laterals costing less but getting less production. Out of curiosity is there any general rule of thumb re production levels and length of lateral? For example, if you double the lateral from 1 mile to 2 miles, is there a reasonable expectation of getting 2x the production, or 1.5x, or some other figure?
JMS: To answer your question, the production results do look a little light from the standpoint of prior estimates. The peak test results for both gas flow and condensate production are lower than the estimated 30 day production figures set out in MHRs prior presentations. Since the actual 30 day production flows will be significantly lower than the peak flow rates in the 8K, the estimates in the presentations were probably 30% too high. All that said, it is just great to have the wells finally on production..... Lex
Slab: Back at you: my sentiments exactly on the 5000 pound gorilla that seems to gain weight each quarter. And I say "let it eat some more for at least another year" because of two factors: first, it gets OUR production to market and, second, at some point MHR drastically cuts further expansion costs and just sits back with a cash machine with an attendant cash flow to reduce debt. Lex
Upton: I have tried to extrapolate a Bakken value from the NAV slides in MHRs past presentations previously. In the most recent announcements, GE notes he has sold off a big chunk of the acreage associated with the Canadian portion of the play. Removing the most recent sale from the total value of the Bakken, reduces the prospective value to the point that a sale may allow GE to "pay down debt and have cash for drilling", but the amount of the debt reduction will not be that great, nor the amount left for drilling. My guess (admittedly that) is that a Bakken sale at this point will yield significantly less then the EFS sale last year. We shall see... Lex
Symon: You refer to "what we longs consider fair value," What do you understand that value is and how does it compare to the analytical pieces Zeits published this morning on Seeking Alpha?
I am not challenging you as right or wrong, just asking an even-keel question in an effort to ascertain your views as to what the fair value is that you refer to when using the term.
Would you please offer your thoughts? thanks, Lex
I agree AR has had some very big IR numbers, but the numbers are generally lower in the western zones and the more liquids, the lower the estimated EUR (by a pretty healthy margin I might add). Note in the press release that the EURs in the condensate and rich condensate zone are basically 1/3rd and 2/3rds the EUR rate of the rich gas and dry gas zone wells. What is great for MHR, is that MHR operates only in these higher EUR zones of the play (using AR's estimates anyways)..
Again, I keep coming back to the conclusion that so long as some of our Utica acreage is not too far south, MHR should end up looking really good in the Utica given its acreage is in the preferred zones as early production histories are playing out. Until we hear test results on Farley 2 and 3, I guess we simply wont know for sure and, even then, we might just be getting a limited glimpse into the future. GL. Lex
AR has bounced back with up market, but it was down over 11% earlier today after announcing it was cutting EURs for its most western Utica acreage by 30% based on production histories in Condensate and Super Rich sections of its acreage. Significantly, AR did not cut its EURs for the zone where MHRs Farley wells are located, which is not in those highest two BTU content zones of the play. That appears to be the reason that MHR did not get an "associated hit" to its PPS. At least I hope so.... Lex
the $20 calls are indeed "out there" for 2015 -- both from the standpoint of being available and being quite a reach price-wise for the next 9 months. That said, the 2016 $20 calls certainly seem a more realistic prospect (at least I am hoping for that to be true as I have sold 200 of them as the higher leg of a 15/20 bull call spread) Go Kog go!
Around $150 mil as I recall, but I could be wrong. wasn't it a 1 in 10 offering, so about 17m warrants x $8.50? If that is the correct math, I think the proceeds would be around $145m. Someone else might have more specific math. Lex
I cant seem to find one quickly. Can anyone help me figure out how to see a replay of the interview? thanks for your help.
dcf: You may be right on Mhr never being to the self funding point IF GE decides to sell early, but the good take outs occur after companies are CF positive and buyout becomes accretive to earnings. Even BEXP getting bought out by Statoil for $4.6B was already earning money. And positive earnings always follow self-funding CF. If GE wants a high price, I think he waits. The curveball is pipeline, which might be a substitute for drilling CF. We shall see.....
Yes, there IS a big difference between oil and gas when it comes to measuring cash flow from existing production given the great disparity between $95 oil and (6 x $4.50) $26 gas (maybe $30 with uplift) when both are measured in boepd. But exiting oily Bakken in favor of Utica/Marcellus makes big difference because IRRs are significantly higher in MHRs Appalachia.
I disagree with your assessment that the PL will be at best self funding, as much of the new construction will be based on the credit facility (extending costs over years vs direct drain) and (from what I see) there are only one major PL project needed in near term (Farley) before essentially all of MHRs production is capable of being produced to the market AND moving forward from there, only short connection lines will be required for the next two pads (Price and Wood Chopper). As GE alluded to yesterday, MHR will be hunkering down and drilling its existing padsites in the near future (Winland, Stalder, Farley) and that we be about all for the next year subject to the new JV he inferred will be coming soon. In light of these developments, and considering the PL's contribution to earnings/CF in 4Q 2013, I think the PL will add a significant amount of CF for drilling next year.
Now, all that said, I agree there will be a funding gap for capex in 2015 as I think GE wants to remain an aggressive driller and not cut Capex that much. This year's Capex is estimated at $400m whereas this years EBIDAX (slide 8) is only estimated at $280m, so common sense indicates GE can greatly close the gap this year, but MHR will not be self funded until late 2015 at best.
t0b: I sense you are being very negative again in light of positive news coming out......
I don't know if 2015 capex will be a problem or not until they announce the capex plans. Production volumes increasing to around 35,000 a day combined with the cash flow generated by the pipeline with its increased throughput may make MHR cash flow positive even with CAPEX. It will really depend on the CAPEX plans, wont it?
By way of comparison, KOG is hitting the point of self-funded capex with 35,000 a day production that is predominantly oil dollars vs gas dollars, but that is with a $940m capex budget vs MHRs $400m budget. At what point MHR might become self funding is finally a question that GE should be able to opine on assuming volumes continue to rise as projected. Hopefully, some analyst will ask that during the first quarter conference call !!! Lex
Looked back at presentation and my previous note is mistaken. looked like the prices received on both asset sales were both a tad low (about $10m under slide estimated values), but my $35m comment on Kentucky was wrong. As I understand the slide, Kentucky acreage is referred to as MHR Production, the division responsible for KY properties.
Thanks JMS. Any comment on test or flow rate of Stalder #2 Marcellus?
Sounds like GE got the amount he wanted for tablelands, but is $35m short on Kentucky. Still, nice to have liquidity needed at crucial time.
Thanks Cuda for tracking this information down. Glad there is some limited potential for the production number to increase, but it is still a TERRIBLE number to have to acknowledge after 30 days of flowback. Sounds to me as if the Neill well may be at the very SW corner of the play. Glad to hear (as HT pointed out) that MHRs pad is at least north and east of this location; that is, inside the possible edge. I guess we will hear from everyone in the next two to three weeks as operational updates come out for all companies as typically come out and accompany first quarter result news. Maybe GE will reveal some news like that for the new Stalder on line when he speaks tomorrow. Thanks again, Lex