Unjustifiable weakness in DEE = Buying opportunityNot quite sure why DEE is stuck in the mud when we see others rebounding hard since yesterday morning.
OK, let me repeat and develop my post more with regards to oil, NGLs, and NG:
Previous post:
For Q2 2014 (latest quarter), we had 3,390 bbls/d of liquids and 42,040 Mcf/d
Liquids are the drivers of profitability for this firm. Period.
Let me explain further:
The usual conversion is the 1/6 energy equivalent measure so you divide by 42,040 Mcf/d by 6, the 42,040 Mcf/d corresponds to 7007 boe/d. and then sum up your 3,390 bbls/d (condensate + NGLs) and you get 10,397 boe/d total production for the quarter. For what follows, I am going to say oil but it is actually condensates that DEE produces. Condensates is very valuable in Canada and trades close to oil.
Now, in terms of energy equivalence, oil should be six times more expensive than NG (given that it gives six times more energy). But it is really important to understand that since approximately 2010, oil has become much more valuable than NG, up to 25 times more valuable than NG this year. That is why you saw this massive switch from the likes of EOG towards oil, oil was and still is much more profitable than NG on energy equivalent terms.
To bring home this message loud and clear, I will say the following:
In energy equivalent terms: The production of oil/liquids (3,390) to gas (7007) corresponds to a ratio of 48% liquids to 52% gas. Not so gassy anymore...
Now in revenue terms, the ratio is even more in favor of liquids (given that they are valued above their energy equivalent). From the MD&A of Q2 p. 15/16, you get the breakdown in CAD revenues:
NG: 19,352
Condensates: 13,626
NGL: 8,818
Oil: 2,019
Total revenues (sum those items): Aproximately CAD43.8M
So:
NG = 44% of total revenues
Condensates = 31% of total revenues
NGL: 20% of total revenues
Oil: 4.6% of total revenues
If we lump up condensates, NGLs, and oil, you get 56% of total revenues. Gas only 44%.
So this firm is clearly a mix of gas, NGLs, condensates and oil. It is neither purely one nor the other. But clearly, the fact that gas rebounds, will not affect it as much as some on this board suspected.
This is one of the best managed, high growth firms in the Canadian E&P sector. I never thought we would see those prices again (almost exactly my entry point late last year)...I almost sold when it had doubled in the space of six months...I didn't, I am back to square one. Definitely would accumulate at these levels. The firm has delivered everything I expected when I made my investment last year. Obviously, I did not see the commodities price crash coming...I did see this firm delivering consistent growth and I am sure it will continue on this path. GLTA!