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.....
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?
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.
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.
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
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.
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.....
Railsnstock: MHR needs to "pause the growth and start stock buy backs"??? Seriously??? With MHR's debt? What planet do you call home?
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.
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
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 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
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 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
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 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