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
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.
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.
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?
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.....
Ben: Don't mean to be overly critical, but your comment about hedged companies will pump as much as possible doesn't make sense if the inference is only hedged companies will do this. Hedged companies will certainly make sure they pump enough to satisfy their hedge volumes, but after that hedging is a non factor in the decision to produce so your comment seems out of place.
That said, I agree that supply will drop after companies start pulling back capex, which will come as soon as wells already drilled or committed to are drilled. My guess is only those with bullet proof liquidity and/or a NEED to drill to hold production are the only ones that will be pumping as much as possible next year, period.
Cuda: Can you remind me what entity owns the rest of EH Holdings LLC? it appears that MS now owns slightly more of the pipeline than MHR, but there is 1.56% ownership not stated in this release, which I trust still gives GE and MHR 50% control of decision making. What MHR affiliate owns that interest, if any?
JMS: I hope you are right, but the Ohio regulatory rep has said there will be a "full investigation" and who knows how long that will take.
That said, am I correct in thinking the reason they were bringing this well back on to production is they are done with the other three wells and all four will be brought on soon?