RE: The Deal - thoughts In sum, the low Natural gas price caused VRO's mgmt to stop drilling gas wells and focus on drilling liquid rich/oil wells.
Liquid rich/oil wells come on stream at lower rates than new gas wells.
Gas production is not being replaced, and net gas production is declining rapidly.
While liquids production is increasing, gas prodution is declining faster, causing total production to decline.
The declining total production, combined with the high debt ratio, has caused the market to apply a very low multiple to cash flow.
The current deal solves this problem.
All the declining gas productoin, and all debt, is being removed from the balance sheet.
This leaves the oil/liquids rich wells, along with their associated gas by-product.
Subsequent oil/liquid rich wells will add to existing production on an annual basis - and possibly a quarterly basis.
This deal therefore transforms VRO from a declining production, gasie, high debt firm, with low market multiples - into a fast growing oil producer, with low debt firm and high market multiple.
The market rewards rapid growth with high market multples.
This is a very well thought out strategy to increase share price in the current market environment.
I expect the smart money to see this right away, and move into the shares reasonably quickly. The dumb money will follow once the share price has already appreciated.