RE:RE:RE:Relative values OBE vs YGRThere are no right or wrong choices here - just different outcomes.
Ultimately they are both likely to do well in the current environment, and better yet if oil tightness continues.
If you think two similar exposure stocks are equally priced, then you are better holding both than just one
I remember back in the mid to late 80's when I was still in grad school, Fischer Black had written a paper on optimal insurance - being something like 50% of the actual value. He was at Goldman at the time. I'm not sure if the paper was published or just internal. It was advanced maths and I remember none of us at the time fully understood it. The conclusion was that in conditions of uncertainty, you were better off being about 50% uninsured (and 50% insured).
The same principles he described seem to apply to pair trading.
I've been spending quite a bit of time recently trying to get a feel for OBE month by month this year. ie, what its likely to move to, and when. Subsequent months depend on prior months, so variance increases by the month.
I think its likely to move in steps, like it did last year. I have an idea of where those steps may take it (with a big variance presently).
Its much harder to tell when the next step will be, and what it will go to. I have an idea. I don't want to be under exposed when that next step happens. It may not be for 2-3 months - or it may come sooner.
There should be a pretty good step up when Q1/22 comes out.
Last year Q1/21 came out on May 7 (about 2 months and 3 weeks from now)
Q1/22 is half over now. It will be over in a month and a half. At that point it will be possible to estimate Q1/22 cash flow. It will be affected by the price of oil over the rest of Feb and March. That price itself is too hard to predict presently.
I'm leaning towards $1.60ish FFO for Q1/22 (still too early to say as it requires guesses with average selling prices and production) - ie about $130 million (This assumes a WTI US$87.5 average for Q1/22).
It maybe higher, or it may be lower, but thats a big jump up from the $88 million FFO forecast by OBE for Q4/22.
OBE forecast that in Q4/21, 26,730 BOE with a WTI price of US77.50 would produce $88 million FFO.
Any way I look at Q1/22 I see a higher average production than 26,730, and I see a higher average oil price than $77.50 (it averaged around $85WTI for the first half of Q1). That means more than $88 million FFO in Q1/22. If Q1/22 FFO is not $130 million, then maybe its $120 million. $120 million would still be a leap up from the prior quarter.
That kind of jump in FFO has multiple implications. It means Q2 FFO may be similar or higher (dependant on prices etc). It means they are way ahead of their debt reduction plan - ie net debt in the 250 million range by the end of Q2. This has positive implications for how much debt they will be locking in, and the rates they will be paying (what they save goes to cash flow).
It also has positive implications for increasing H2 capex (maybe $50 million ish). And it has positive implications for how much of a dividend they can pay and when.
If you put a 2-3X annualized cash flow multiple on $1.6 FFO in Q1/22, you're in the $13-19 share price zone. Thats 35-100% ish in 3 months.
Last year OBE released its Q4/21 info on March 29/21 (about 6 weeks from now). Maybe OBE foats around with oil prices over the next 6 weeks - or maybe it doesn't. It sure looked like inside information made it into the share price when the first 3 bluesky wells started to flow, and then again when the first clearwater well started the same. Will the same thing happen when additional clearwater and bluesky wells start to flow?
If you feel YGR has similar propects over the next 3 months, then please share them.
Also do you know what tax pools YGR has?