Think about the potential to make a killing in stock options. The right person could come in here and make tens of millions for themselves and for us. There are so many assets coming up for sale from over leveraged companies at fire sale prices. A person with knowledge of some of the different shales could cherry pick some terrific assets in this environment.
The company has a lot of liquidity due to their low debt profile. They are looking at three new oil projects right now with positive rates of return with oil in the $70's. Plus, they are bringing on an experienced oil and gas man to turn the company into an operator in 2015.
PV-10 was $115 million at year end 2013. The Beeler 6H, 16H, 17H, 19H and 20H should add something to PV-10 by proving the Buda goes all the way to the west on their lease. There is virtually nothing in PV-10 for either the Austin Chalk or the Eagle Ford. When they drill the Eagle Ford on the K.M. Ranch lease in January only one mile away from successful EXCO Resources Eagle Ford wells PV-10 will jump.
The estimate is for EURs to average 400,000 BOE per well. On 100 acre spacing they should have room for 40 Eagle Ford wells on that lease. That alone would double the company's PV-10 value.
So much hype on micro minute about this move or that employee. I just want to highlight the macro view for USEG:
1. 2015 production should be over 1,000 Boepd if they lay down all the rigs and drill nothing.
2. The oil and natural gas are still in the ground and most of their Bakken and Eagle Ford leases are held by production.
3. They are finally bringing in an experienced oil and gas person to take the helms and turn the company into an operator.
4. They only have $8 million in debt and over $4 million in cash. They can hunker down and/or acquirer assets on the cheap.
5. The assets are worth much more than the stock is trading for. PV-10 at year-end 2013 was $115 million and the stock is trading for $65 million. In 2014 they added a significant amount of proven producing and non-producing oil and natural gas reserves in the Buda in very economical wells.
6. Contango plans to test the Eagle Ford on their leases. Potentially very significant upside.
Fortunes are made by scooping up valuable assets for pennies on the dollar. With any luck they have found a respected oil and gas man who just so happens to want to have a passion for fly fishing as a hobby. News coming on that very soon according to the conference call.
1. Buda grows to 800 Boepd in the fourth quarter with sequential growth of almost 50% from the second quarter. Pretty much inline with my forecasts and others I've seen. Overall production of 1,550 Boepd is a company record and a significant achievement for management.
2. Bakken differential discount averaged $18 in the third quarter. This was $6 bigger than estimated and caused half of the revenue shortfall from my $10.7 million estimate.
3. One-time retirement charges of $700,000 shown as an increase in general and administrative expenses caused almost half of the miss of my 8 cent estimate for Q2. The very good news is this dead-weight and expense is gone going forward from after this quarter. They took all of next years promised payments and booked them into this quarter. This should have been broken out as a one-time charge. Fourth quarter general and administrative expenses will be down significantly.
4. Very very conservative depletion, depreciation, and amortization expenses of $4.6 million caused the rest of my earnings miss. This was up from $3.5 million in Q2. At this rate in a few years the company won't have any oil and gas assets left on the balance sheet left to deplete. With such low Buda well costs not sure why they are being so much more conservative than other oil and gas exploration and production companies.
5. Cash flow from operations rises to $4,516 million for the quarter, which is a company record. That equals $.16 per share for the quarter. How many companies are trading at 4 times cash flow with this growth rate in high IRR Buda wells?
6. Working capital grows to $5.7 million. Long-term debt is only $8 million. The company is almost completely leverage free and in great shape to grow from asset acquisitions and fire sale prices from desperate over leveraged E&P companies.
All in all a very good quarter when one digs into the 10Q. Looking forward to seeing the operations update.
Net of hedges, I don't see any negative quarters going forward. Caveat of course is as long as oil prices don't drop a lot from here.
FYI the third quarter could be a company record for revenue and earnings from operations.
These numbers would be even better if Contango didn't move the rig for 6 weeks in August and early September to a non-USEG Buda well.
This is preliminary until we see September Buda production. Bakken production holding up nicely in Q3.
I'm estimating a 25% sequential production increase in Q3 over Q4. I'm estimating a 7% pricing reduction.
Put me down for $10.7 million in revenue and 8 cents per share for earnings.
Also put me down for one of the next three Buda wells with Contango topping 1,600 Boepd for an initial 30 day average.
Seems the market has forgotten just how strong the business case is for the Buda. Looking forward to the results of the 26H Buda well drilled with a 9,000 plus foot lateral.
Much of the oil in North Dakota is shipped by rail to the coasts. The pricing is closer to Brent, but the transportation costs are high. Most companies are averaging more for their Bakken crude than the Quoted Bakken spot price.
Nice analysis and good to see you posting. Last quarter they earned $56K even though they had hedging losses of $612K. They also had interest expenses of $149K, but their borrowings this quarter were only $8 million compared to $17 million in the second quarter. When you add in your estimated hedging gain to Q3 and back out almost $700K in charges that gets you to $.04 per share if everything else stayed constant.
It would seem the increase in production is quite a bit more than the decline in average oil prices in Q3. I am estimating something higher than $.05 for Q3. Perhaps something more in the $.07 to $.08 range
Then buy USEG. Proven are over $200 million and the market cap for this stock is under $100 million.
Contango has a slide that the potential proven PV-10 value of their share of the Buda and Eagle Ford is worth $626 million. USEG's share of that acreage is over $300 million based on Contango's estimates.
That doesn't count the Bakken or the new Dimmit partner acreage.
The article mentioned what an excellent driller EOG is. It was just wishful thinking.
It should be noted the estimated reserve value for the Booth-Tortuga lease of $1.2 billion to $1.5 billion did not include any reserves for the Eagle Ford. Simply amazing USEG has 30% of this lease.
It should also be noted that didn't include the K.M Ranch lease, the Willerson lease, the WCS lease, or the new Dimmit parter lease. And of course it didn't include the Bakken leases.
The rig was gone a total of 46 days to drill two wells. It looks like the drilling times are down to 22 to 27 days. Very impressive. We should easily have three more Contango operated wells start production in the fourth quarter. Maybe four.
We may be on track to exit the fourth quarter with a 2,000 Boepd run rate. Should we get any meaningful contribution from the new Dimmit partner we may average 2,000 Boepd in the fourth quarter.
$1.5 billion times 30% working interest is $450 million gross to USEG. Since $30 per reserve barrel is used it is already discounted back.
My understanding is USEG picked all of his up for $10 million. That price included their share of costs to drill the Beeler Eagle Ford well and 11 already producing Austin Chalk wells.
Hopefully Contango sells out to EOG and we can get them to operate the lease.
First they sell the plane! Then they sell the apartments! Now one of the brothers retires!
This is the company's opportunity to go out and hire an oil and gas man and become an operator in 2015! Stock price premium would double with the right hire!
Since USEG has a 30% working interest that would place the value of their share of the Buda over $150 million just on the Booth-Tortuga lease. That is 50% more than the stock is trading for.
That doesn't count the K.M. Ranch lease or the new Dimmit acquisition. It doesn't factor in the Eagle Ford or the Austin Chalk. And it doesn't factor in their Bakken production. Fair value for these shares right now is close to $12.
Good to see you back and would value your opinion on the July production results from the Buda. Specifically, what is your thinking on seeing the production on the more mature wells stabilize?
Since the next leg up for the stock is $6 to $7 as soon as third quarter earnings are released, or sooner, why would anyone be looking to sell. The "smart money" is still buying.
Boolean, have you not seen the latest production numbers on the Buda wells?
One point not everyone may have caught is the production from the Buda has much better pricing, and lower production and depletion expenses, than production from the Bakken. This will not only accelerate top line growth, but also net earnings and cash flow.