Eagle Energy Inc T.EGL.UN

Blue Vs Yellow

[lenumero66]

I've quitely been following this board for a while and during the proxy fight. I felt like giving my 0.02.

In my opinion your choice should be dictated by one thing: future oil price.

If oil is going to recover to $70 in the next two years, the higher Eagles production the more the company will be worth. The interest cost and executive pay issues will just be noise, and while not ideal, the shares will be worth 10 times what they are today.

I have a little calculator sheet that I have been using and it has tracked reasonably well to the previous financial results. Take these numbers with a grain of salt but my prediction at todays production level and $70/bbl, eagle would net over 6M/quarter and have free cash flow at  around 7M/Q (allowing for 5M CAPEX per Q). Assigning a P/E of 10 that translates to a share price of around $6.50. (this assumes no active hedging). Even the most ardent blue supporter I think would happily take that. I know I would!

If however you are like me and think that the new reality is $50/bbl due to shale production (which just keeps going up), without hedges eagle barely scrapes by under their debt load, with essentially 0 net income. In this case I every dollar wasted on interest and executive pay is huge and kills our share value. If oil price isn't going to save our crappy balance sheet and bloated overhead, it needs to cut. Trim everything except the highest return assets, focus on one play, and maybe we can get the share price back to $1-2 and maybe pay some kind of minimal dividend. If you think low oil is here to stay, Blue looks like the clear choice.

So in summary I agree with current management, if oil price is coming back, we should get as many BBLs as we can, their is so much torque for Eagle share price as oil prices recover that we would be stupid to sell now in a depressed environement. HOWEVER, I don't believe this is a depressed environement, this is the new reality. I don't think the oil price is coming back. We need to get this company profitable in the new $50/bbl reality. I have seen many companies die (PRY) because manament was sure the price blip in 2014 was temporary. It's 2017 and there is still a huge surplus at Cushing. I think we are going to be in the same place this time next year.

I had a small position in Eagle before the oil price crash. I've been adding since late 2015 because (at the time) I was sure that oil would recover to $70-80 by 2017, and I would be making a good return plus dividend. Clearly I was wrong. I don't think oil is coming back and so I think we should go blue.

However this turns out I hope for good things for Eagle and that we can get this company back on track.

GLTA.


P.S. I have no basis for this, but I wanted to see what would happen to share price if we went blue AND oil price recovered.

Assumption:
-sell 2000bbl/day of production at $25k/bbl metric ($50M CAD). I think this is really conservative
-Refinance remaining $25M CAD at 5%
-Assume Royalties scale linearly with production and oil price
-Assume Opex/transport/depreciation reduce by 50%
-Reduce G&A to $750k/quarter
-2M/Q capex

Remaining production 1800bbl/day @ $70/bbl
Net income 3M/q, Free cash flow 3.7M
Implied share price $2.93