RE:RE:RE:Risk of ownershipThe way I see it, the market is volatile so it creates opportunities that companies should take advantage of. In Kelt's case, buying back shares when they're so low makes sense. As does hedging oil and natural gas when prices are very high.
Problem with spending all the cashflow on capex is you run the risk of malinvestment. And as I've illustrated, at these oil prices, they're going to have a lot more of it.
So where can they spend the cashflow right now? Pouce Coupe oil prone and Charlie Lake of course but do they even have the processing capacity in place to handle the associated gas? Wembley they could drill more wells sure but that only means more wells behind pipe. Maybe acquire some lands I guess. I don't really know tbh.
But I'm quite certain NG is not a good place for Kelt short term and long term. If HH goes up to $5-6, surethey can always hedge 100-200% and start drilling Oak and Pouce Coupe West.
The problem of natural gas is there's an oversupply of it. Storage is sky high right now and even if production is slightly dropping, its still making very little headway on whittling down storage levels. Moreover, Permian associated gas is actually down some now (pipeline maintenance) but with these oil prices, producers are going to drill more which means more associated. And egress is going up in the near term by 2.5BCF/day.
In the US, the natural gas business profit model is very well established. It revovles around HH price. What are your cash costs, what are your sustaining capex / depreciationg costs, and what are your realizations.
Producers are constantly driving cash costs down (often thru M&A eg CHK/SWN and EQT and its related party), lowering sustaining capex thru improved efficiencies, and improving realizations thru better egress, more liquids (Antero), hedging and of course, LNG (which most producers are not direct participants at the moment).
EQT is sort of the standard (even though Antero and Range have the best dirt - more liquids and lower capex costs) and they've now said they will get their costs (ie drilling + cash) to sub $2.00 and they're pursuing LNG (and hedging). So you can see that long term they'll be ok with $2. Because they'll get more via LNG. So will the liquids rich (Antero, Range) and of course the associated (Permians).
By the way, US producers did not benefit from LNG, the traders did. Probably the same will happen here.
Oak is probably as competitive a natural gas play as there is in Canada. Because of the condensate (?) %. Most gas plays in Canada are 5-8% oil/conde/pentane, Kelt is more like 15-17%. But that's not sufficient. They also a) need to operate their own plant - they don't b) realize better and hedge better and c) participate in LNG directly. None of which they intend to do, is a core competence and they have a hope in hell of achieving.
So after all the bs above, you may be right. Delineate it and sell it may be the way to go. But will the buyer see that plant commitment as a liability?
Lilke I said earlier, what the heck do I know except the share price sucks.