Thoughts AGM PresentationThere is lots to digest from todays NR and the AGM Q&A. I'll write later once I've done so.
That said, a few things jump out.
1. We now have an official target debt level before any return of capital. That number is $225 million long term debt. This number was stated to be one times cash flow at WTI of $50.
2. They said they are a bit less than $350 million presently.
3. Capex for 2022 has been increased from $150 million to $300 million.
4. They previously stated about $105 was budgeted to H1, which implied $45 million for H2. We know they spent about $100 million in Q1. We know they are drilling in the Viking in Q2. We don't know Capex for Q2, but maybe in the $20 million range.
5. That means they will spend about $120 million in H1 and $180 million in H2. ie, they've gone from about $45 million budgeted in H2, to about $180 million budgeted for H2. That is a big change!
6. They had 4 rigs going in Q1. Most of those were idle in Q2 (break up means you can't move them around) - with the exception of the one they have going in Viking.
7. They are going to have 3 rigs going in Q3 and 4 rigs going in Q4.
8. They have a choice between holding production steady, and returning extra cash to shareholders, or increasing production. They have picked increasing production.
9. They were not clear about a 2022 target exit rate. They said going into 2023 with 37,000. It was unclear to me if 37,000 was their target average production for 2023, or if that was their expected exit rate for 2023. I think it was the exit rate. They can't yet have a budget and drill plan for 2023, so they won't have an average production forecast for 2023.
10. They said they 2022 production was going to be 30% higher than 2021. This probably means the average production in 2022 will be 30% higher than 2021. Thats a major growth rate.
11. They are still working on the refinancing. They seem convinced it will happen.
12. By focusing on growth (ie growing the company 30%), and committing to a long term debt number of $225 million (aka 1 times cash flow at $50 oil), they are presenting this company to be a bullet proof low risk company for lenders (debinture buyers). Keep in mind they are presently in the process of trying to find buyers for their soon to be offered debintures (long term debt). The lower risk OBE is, the easier this will be (and the lower the coupon rate will be on that long term debt).
13. Analysts can figure out for themselves when the $225 million long term debt number will be achieved. Looks like $100 - $125 million away. I'll be doing my own sensitivity analysis shortly.
14. Take aways.
a) A dividend is not imminent.
b) The increase in Capex is much higher than expected.
c) Growth is much higher than expected.
d) Analyst models that are based on production and forward strip prices to predict target prices, will now be updated to include increased production. That means analysts will be increasing their target share price - I expect the target to get upped tomorrow.
For what its worth, I started buying again mid way through the presentation. Previously I thougth I had a big enough position. Something changed during that presentation.
Major growth combined with major debt reduction. Not so long ago it was always one or the other. Pretty amazing to be writing now about having both. I have write it again, just to believe it. They are not talking 5% growth - they are talking 30% growth.
I also point out that Loukas stated industry production growth is maxed. He said that to get a new rig you have to take it from someone else.
They were using 4 rigs in Q1. Part of the increase in H2 capex is to keep those 4 rigs working for OBE instead of have them get poached by a competitor.
As a finance guy, I want a large dividend because I can easily see the immediate share price impact. As a shareholder, l'd like that price jump now, rather than later. However, also as a finance guy - without yet having crunched the numbers, I can recognize that 30% growth, combined with an increasing oil/gas prices, means a lot more cash coming down the road - maybe not far down the road. Many of the big US banks are forecasting WTI averaging $135US in Q3 or Q4. Put that together with 37,000 boe and see what that looks like - I don't know yet, but its a big number - may even exceed quarterly FFO of $200 million.
The beautiful thing about companies like OBE is they can move one way or the other, and which ever way they go, they get you excited.