You might be making it too complicated with many subjective assumptions. Operating cash flow return on the cost basis of fixed assets (undepreciated) is running about 17% to 20% the last few years. That's a payback of a little over 5 years. That includes any undeveloped assets that haven't produced a dime yet. CLR performance is just fine.
I know you claim it's your opinion only, but please back up your claim of water production vs. oil production with facts.
As of today, EXXI's trading enterprise value is .66 times the PV10 value of proved reserves (excludes unproven reserves). At some point, hopefully sooner that later, management needs to shake the trees somehow to get the value of it's assets better recognized by the market. Hell, they could sell just the assets and benefit the shareholders at the current price. Who knows where the bottom is for this stock with the current selling trend (irrational?), but it looks like the current price could provide a long term benefit. I'm looking at this as a long term hold with consideration of adding some more if/when oil prices stabilize.
Hate to be obvious here, but Adjusted Earnings per Share (diluted) were $.20, a clear beat; not a miss. That said, forward guidance and current oil price environment may be more important to the price action tomorrow.
You hit the nail on the head. The strategy works very well with decent E&Ps that are backed by solid tangible assets. Sooner or later, the market must recognize the value of the underlying assets or management will figure out a way to get them recognized (stock buy backs, asset sales, merger, dividend, etc.). This of course assumes oil and gas prices remain at profitable levels...
Front and center on slide 2 of the presentation, new PV-10 reserve value is now $7.8 billion up from $5.88 billion. A rough calc of UPL's new enterprise value is about $6.8 billion at the current stock price $22+ with the new debt. In other words, the company's trading value is now less than its proved reserve value (Enterprise Value to PV-10 Value ratio of .9). Virtually all E&Ps I follow trade at least a moderate premium to PV-10 value on an enterprise value basis. All things being equal in the market, this stock price is eventually going up significantly once investors figure this out.
The acquisition is a high pv-10 value property which means it's likely producing good cash flow. I'm guessing once more info comes out, the acquired property cash flow will more than cover the debt service.
If I'm reading the news release correctly, it's a net increase in PV-10 reserve value of $1.8 billion for net cost of $925 million. Not sure what kind of un-proved reserve value is exchanging. Sounds like a good deal for UPL on a high level.
The courts are usually careful not to order buy-outs, or any other settlement, that would disproportionately enrich the spouse at the expense of remaining shareholders. The courts are usually concerned with landing at "fair' compensation; this assumes good legal representation (I assume Hamm has the best).
When the stock price is getting its butt kicked like this, management at some point needs to get off its rear and take some action to get the underlying value of its stock and assets recognized...yet all I hear is crickets coming out of the company. The company is currently only trading near or below the underlying value of its assets (per its published reserves) which indicates management is currently adding very little value in the form of company goodwill. For those holding long, let's hope the crickets mean something's going on behind the scenes. For those short the past few weeks, congrats on the trade (I personally hope you'll be covering like mad soon!).
To answer your question, I personally give much weight to realized gains/losses and much less weight to unrealized gains/losses when assessing true economic cash flow performance. If a company holds say a full year's worth (or more) of hedging derivatives on its balance sheet, why give weight to the temporary value change of future derivatives to one historical quarter? To better clarify my comment on GAAP, I think relying on the GAAP income statement earnings alone can be a terrible indicator of short term performance. Reviewing the GAAP income statement, balance sheet, cash flow statement and notes to financial statements together can provide the best answer. Adjusted earnings can be a summarized short cut to that answer.
Thanks for the comments. Good post. Keeps everyone on their toes.
I suspect you know better. GAAP does fine in the longer run as non-cash items and balance sheet-booked vs. income-booked items get washed out; but GAAP can be a terrible indicator of short term performance due to timing factors related to those same items. E.G. AXAS's $7.1M unrealized loss last quarter (because of high oil prices) could just as easily turn into a realized gain as the hedges are used if oil prices decline in the future.
I think it's the other way around. My belief is that the market is valuing TPLM primarily as an E&P (viewing total enterprise value in relation to the value of reserves) and only giving marginal value to Rockpile/Caliber. By the way, I looked at your well IRR model from your 7/24 post. Nice effort. If it were my model, I would remove most of the G&A expense (you're trying to capture the marginal profitability from investing in the well - G&A exists regardless of whether wells are drilled). Also, I would remove the annual depletion/depreciation cost because that's double counting the original investment cost up front.
I don't get your questioning TPLM's EBITDA and related multiple. EBITDA is what it is and already factors in TPLM's well profitability regardless of what other companies do. BTW, one of the easiest measures of return on capital investment (e.g. well profitability) is EBITDA profit percentage of net fixed assets. TPLM's trailing twelve months EBITDA/NetFixed return was about 18.5% for its E&P segment alone (or 16.2% if you allocate all corporate G&A to the E&P segment to be conservative).
Based on Morningstar's reported EBITDA and Net Fixed, here are some of TPLM's peers' trailing twelve months EBITDA/NetFixed:
OAS 16.6% (includes OAS oilfield services)
TPLM's return on investment has historically been high. Are you implying that management is wrong and TPLM's profitability will start decaying? If so, please let us know why.
Plus a trailing twelve month EPS increase from $.49 to $.60 including new share dilution, a 22% increase. Stock is starting to look cheap again below $6 per share especially if nat gas prices stabilize and increase.
Your're right. This stock trades in lock step with gas prices. Do a 1-Yr, 2-Yr, & 3-Yr overlay of UPL v. UNG. Not sure if that represents a fair comparison or not considering UPL has the ability to increase/decrease production, but it is what it is. As of today, UPL looks a little oversold compared to UNG.
Interest rates don't increase in a vacuum. Interest rate increases are usually linked to price inflation. Price inflation is typically reflected by rising commodity/asset prices (e.g. natural gas, oil, food, etc.). Rising gas/commodity prices would likely benefit, not hurt, UPL.