RE: recycle raio? When it comes to the recycle ratio, the higher the number, the better.
The recycle ratio equals the profit per barrel divided by the total cost of discovering and extracting that barrel (more commonly known as the netback divided by the finding and development costs).
If my memory serves me correctly, when comparing Legacy with LRE, you will find two companies with about the same expected cash flow per share in 2013. However Legacy has a much higher debt to cash flow multiple. In brief, this means both companies generate a similar amount of cash per share, but one carries a lot more financial risk than the other. A wise investor will pay less per share, for the more risky shares.
However, in the case of Legacy vs LRE, investors are currently paying more (nearly 40% more) for the more risky shares - thats called mispricing. Either LRE's share price moves ahead of Legacy, or Legacy's falls below LRE's.
On top of this, we have the N. Gas option included with every LRE share. ie, if N.Gas improves in price, LRE's cash flow will take a big step forward - while Legacy will not see the same result, as Legacy is much more focused on oil.
To further complicate the situation, there is a massive short position in Legacy - something like 25% of the outstanding shares. That is a massive position. I don't know who is behind it, but clearly a big part of the market considers Legacy to be over valued. It looks fairly valued to me, not over valued - which begs the question, is there something wrong with the company? A 25% short position is something you would expect to see in a firm like Sinoforest products or Brex etc. Its such a huge short position that it alone is enough to discourage me from investing. Short investors tend to be much more sophisticated than long investors. Thats not to say shorts can't be wrong, but because of the additional risk (takeover risk etc) of holding a short position in an apparently fair valued oil/gas company, shorts need to be very confident in their conclusions before they will take such a huge percentage position. Without knowing what their investment thesis is, I have to suspect the worst.
The above alone is sufficient to cause me to stop looking further into Legacy. In my view LRE is significantly undervalued vs Legacy - in such cases, I pick the undervalued one.