RE: RE: RE: like the well Hi SigmaKappa;
I have done a number of economic runs for MGM. At P50 reserves with a 5% recovery factor the intrinsic value of the share is $10. This is using MGM published numbers.
Intrinsic value and share price are two different things. The question is how does the average shareholder know what the the darn thing is worth. The usual way is that companies issue technical data like reserves, production profiles and capital requirements. The brokerage firms then do their work and give the share a value. The other way to realize the intrinsic value is a buyout. When a company buys out someone they go through the same process as the brokerage firms.
So we need some events to happen to get the value recognized:
- Good tests are vital
- Disclosure by the likes of Husky, Conoco and MGM
- Brokerage coverage or a buyout.
I favour the buyout scenario. (Glacierman, Clay taking the company doesn't make sense to me, but we can discuss more) I have a couple of reasons for liking the Shell buyout theory:
- Clay and Shell have a history. Shell bought out Duvernay Oil Corp for $8 billion. Clay was a major shareholder.
- MGM is operator of all but one block. Shell always wants to operate. The only way Shell is getting them out is to go to the Federal government and have them declared incompetent. That isn't going to happen.
- The amount of capital that MGM needs is about $3 billion. It is possible that they could get a joint venture partner, but Shell is not going to be happy if another major is the operator.
- Shell has a stated goal of producing 250,000 bopd from shale oil by 2017.
- They acquired the Permian basin assets from Chesapeake for $1.9 billion recently so they are implementing their strategy.
Here is what Russ Ford, Shell's executive vice president for onshore operations in the Americas says:
Now shale production, especially in North America's investor-friendly oil patch, makes quick production increases possible. "The turnaround onshore is much different than what you get in an offshore environment," Mr. Ford said in an interview.
The attraction of shale for big, deep-pocketed oil companies is that "If you want to throw a lot of capital at it, you can achieve a lot of growth in a short amount of time," he said.
I think this all make sense in the context of Shell past action. A farm-in to EL 466 and buying out MGM's 50% partners in the other blocks. Shell is now the largest land holder in the Canol play. Imperial is second and Husky third. MGM is a respectible fourth and Conoco fifth. Shale oil and gas is a very big boys game. Even Husky is going to be stretched to the limit to develop its acreage. They need about $24 billion, but they have major offshore connections so they will get a JV partner.
Remember that Clay is going to use his considerable business skills to get the most for his company. He is worth $3 billion now and MGM may make him a lot richer. I like riding in the slipstream of a guy like Clay.