RE:lre update divy cutI'm pleased the dividend is finally done.
In my mind, it was a soft share buy back, as I'm sure a lot of that dividend money just went into buying additional shares. I don't think thats needed any longer. At these levels, smart money is finding its way into LRE on its own (see Templeton's recent increase to 35 million shares)
Its also nice that they've created a spending budget for 2015 which is within their cash flow, at very conservative oil and gas numbers.
This was probably done in consultation with their lenders to keep them from reducing their credit line.
The most resistant party was probably sprott - and from my position, I don't want my LRE investment compromised by the minority self interest of sprott.
I also suspect Templeton may be asserting themselves, with their now 18% holding. Templeton is far more likely to prefer capital appreciation than dividends.
There is very little good news in low oil/gas prices. However in that overall difficult environment there are good signs. Its interesting to see that LRE is putting its drilling money into its newly acquired assets........and getting some top line results..........along the lines of 1000 BOE test data.........its data like that which allowed some of LRE's competitors to achieve multiples, double that of LRE............its nice to see LRE is now in the big leagues, and when thsi storm passes, they may just fine themselves with much higher multiples.
Its also nice that the next updates will be positive - ie an increase in the capex program etc, or an increase (resumption) of the dividend.
The bad news is that at the stated low oil/gas prices, LRE apparently forecasts about 100 million in annual cash flow. The bit I don't understand is the impact of the hedges. Is this 100 million the expected cash flow without the hedges, or with the hedges. Given that about half the production was hedged for the first half of 2015 at very solid numbers, I suspect this 100 million may be without hedges. I may be wrong - but it does seem more like an unhedged number than a hedged one.
This may mean they have, or are considering, moneterizing their hedges. In my opinion this would be a very interesting, and a very good idea. Their hedges have maximum value when the price of the hedged commodity is at its lowest. If oil has bottomed, LRE could get a big financial windfall by selling its hedges (before the price of oil advances). As I write this, I don't know what that figure might be, but I suspect it would be 10's of millions, possibly as much as 100 million...........ie could be worth 50c per share!
If I were running LRE, I'd definately sell the hedges asap, and cut the dividend and adopt a cap ex budget based on actual oil/gas figures.............seems like they've done the last two.............I wonder about the third part?