RE:RE:RE:RE:RE:When is the new equity comingBb Colleagues,
When Nick concluded in post #2300700 that "I didn't say PEY is not profitable they are a top performer, but there are others" ...... I agree. Reflection on perspective differences can also be useful :
- In the stock trading marketplace a difference in perspective is generally necessary/useful i.e. when an individual or organization conducts a Buy, there is another party with the view that to Sell is the appropriate trade for them - even 180 degree difference is normal.
- When you say that you "line-up the numbers the same way for every company" that you review and invest in , that seems pretty difficult when one considers issues such as
- Differences in leverage based on funding structure
- The varying relationship in prices between Oil and Natural gas and Liquids prices
- The unfortunate reality that the amount of CAPEX necessary to maintain current operations(or even current growth) is not something that can be easily determined and the entire CAPEX for a period tends to be frequently used(can be a significant source of comparisons error).
- Issuing equity is not necessarily dilution in terms of enterprise value - depends on price of the new shares compared to current enterprise value per share.... the equity issue raises funds which initially go to treasury and can be used (generally intended) to raise enterprise value by adding reserves or facilities. Note: Immediate dilution of short-term earnings or cash flow per share simply emphasises why multiple parameters are essential for comprehensive analysis, interpretation and insight.
- A business model which includes Dividend Distributions is clearly a company BOD strategic business decision which includes many considerations and carries business ownership consequences to shareholders. Even in a DRIP environment, the Dividend model can be less attractive to Capital Gains focused shareholders compared to Income focused.
- The Peyto Bonus Plan is one interesting and a distinguishing aspect of Peyto operating practice. The Bonus Plan is directly linked to two(2) excellent company performance measures(Stock Price Increase and New Reserves). It is direct cash based whereas most competitors have a Bonus system based on "Gifted Stock Options" for which there are "some" recorded expenses.
- Even under generally accepted accounting practices, care is obviously appropriate in considering any published figures and individuals will make their own "normalizing" adjustments. Simple example : Cash flow in any period needs adjustments for gains or expenses that are not directly related to normal core business(e.g. gains or losses on sale of an asset). Because the amount of CAPEX necessary to maintain current operations is not something that can be easily determined, parameters such as F&D costs/ boe(Finding and Development costs), Recycle Ratios, and Reserve Replacement measures help address this issue - measures where Peyto is particularly strong at using for decision-making and reporting.
- When cash flow is lower than CAPEX + Dividend in a period, then funds need to be raised to cover the shortfall. Whetherone chooses to view these "new raised funds" as going to pay some CAPEX investment and that cash flow pays Dividend or that "new raised funds" go directly to Dividends, is individual choice. The real issue here is in the impact of the CAPEX on growth.
- Clearly, Product Mix reflects heavily today on cash flow Netbackper boe. Stromgly oil weighted producers such as Crescent(CPG-T) or Eagle Trust(EGL.un-T), etc, etc, have much superior cashflow netback per boe due to massive difference in commodity price for Oil compared to Natural Gas, on a BTU heat content basis. Whether one takes the Engineering Heat Content definition of 10,000 mcf of natural gas to equal 1 barrel equivalent of Oil or 6000 mcf = 1 boe,, the commodity price difference in the marketplaceis huge at $85 per barrel of oil compared to $25 per boe of natural gas at 6000. Yes there are many considerations such as traditional use and ease of use in transportation, World market for Oil compared to somewhat land-locked natural Gas on North American continent, but Engineering equivalent Heat Content value in terms of BTUs suggest that the "price gap" will narrow over extended time(however long it may take for large scale LNG exports).
- Peyto has many operating policies that are positive compared to some others - e.g. they are not, by declared policy, very large accumulators of “idle lands”, they have relatively small core staff, they have grown internally extraction processing of liquids, they have grown organically(through the drill bit) until the 7500 boe/d acquisition of Open Range when they had reached around the 47500 boe/d production region, they are very open in their communications to shareholders with Darren Gee’s monthly report keeping-on the monthly report practice initiated by Don Gray.
- Peyto’s recent significant price drop since mid-June, from $41.50 plus to $33 reflects IMHO a combination of shareholder perspectives that
- in our current business environment the Oil & Gas sector was over priced and
- that Peyto specifically had become expensive along some dimensions such as NAV(what discount rate) and Market value per flowing boe/d, or that debt v. 2014 cash flow estimates had become uncomfortable for some, etc., etc., etc….
I hope that some part of these reflections are useful,
Good Decision-making to All,
ElJ