Delphi Energy Corp. DPGYF

RE:RE:RE:RE:New 52 Week Low ---$1.44

[jerrybe]

DEE is definitely very good at fracking. Its well performance keeps on improving every year. 

Even the latest well has been tweaked some to improve results. Those will come in early next year I believe. Who knows? Maybe another small step change improvement.

The business is solid but it does rely on the performance of NGLs (liquids) and those are priced based on oil (x% of oil depending on the liquid) so the fact that oil goes down, means prices for liquids go down. And as we stand, liquids are 50% of revenues for DEE. Their wells generate lots of liquids. So that explains why it got hit more than, say, AAV, a competitor that has a bigger portion of its revenues derived from gas.

Gas has been more stable but is still barely around $4 with what can only be described as a cold start to the winter. Injection season just showed how much gas is being produced in North America. Until LNG stations come online, it is hard to see NG going much above $4...except of course for cold snaps in winter.

Lastly, DEE is highly leveraged and the most leveraged firms got punished the most here...the good news is that they are at the point of being free cash flow neutral...or at least they were one month ago. I guess we will have more clarity after Q4 2014 with a strong exit rate and a good estimate of FFO and capex for next year. Their guidance shows that they will be basically free cash flow neutral next year. In a low price environment, they might cut back capex by one well. The big step change is planned for 2016 with two rigs running and a huge boost to reserves which would allow them to borrow more and grow faster. This is a very disciplined management, they will not live above their means. I will add more if prices remain depressed through the new year. I am holding back just because I have added quite a bit recently. I am down 20% on my investment in DEE but my window is 2017-2018. By then, I expect the price to be much higher than today.