RE:Q3John...are you using a capex of 40M for Q3?
JohnJBond wrote:
I suspect cashflow for Q3 will be pretty close to C$1/share. That would likely take debt down to about C$400, and making it possible to exit 2021 with debt of C$350
The main downside unknown is the nature of the Loukas contract extension. ie, did his old contract expire during the quarter, and did that trigger a share price performance payout that would affect cash flow.
On the plus side, the increase in Natural Gas prices may have had a bigger impact on cashflow than oil prices in Q3. About 2/3rds of Nat gas production appears to be unhedged.
Until recently, Natural gas has been essentially irrelevant to OBE's valuation. One dollar increase in Nat Gas is like a $6 increase in oil. OBE has about 9000 BOE of Nat gas, vs 13,000-14,000 BOE of oil.
I don't know what prices they got for their Natural Gas Liquids in Q3, or presently, but they were getting very little earlier, and those prices are strengthening.
Remember Natural gas Dutch price benchmark is about US$225 BOE presently and LNG is about US$200 in Japan and South Korea. This means as much Nat Gas as possible is being taken out of the US by LNG for those markets - driving up US prices, which pull up the Canadain price (Canada exports around 3TCF of natural gas by pipe to the US annually)
Will be interesting to see how much progress has been made in Q3 to lower the debt, and what negative surprises will be revealed in the way of managerial costs.
In any event, its looking like perfect weather for OBE given the following
1 Low number of shares = high exposure to increased cash flow / share
2 High debt becoming low debt over months rather than years
3 Large exposure to Natural Gas compared to peers.
4 Unfollowed by analysts so lots of room for increased attention
5. Largely unhedged, with most hedges very short term - month ish out so able to participate in Oil/gas price spikes
6 Energy crisis already in parts of the world resulting in power generation switching from Nat Gas to Oil - thereby increasing oil demand
7. Focus on green energy has resulted in reduced global oil/gas replacement, reducing supply
8. Takes about $2 in cash flow per share to maintain or slightly grow production. Current annualized cash flow likely double that with room to grow rapidly with increased oil/gas price
9. At year end 2021 (3 months ish), debt may be close to C$350 with similar cash flow, meaning debt to cash flow ratio of 1X From that point on there is a good chance cash flow inexcess of $2/share will be spilt 50/50 ish between debt and dividends, or maybe 33/33/33 debt/dividends/extra development. Either way, that suggests shareholders may be 3 months away from a $1 ish/year dividend. If not 3 months, then maybe 6. Either way, it appears to be firmly on the horizon and getting closer every day.
10. Oil is a good inflation hedge and a good US$ hedge - both of which are looking shaky
11. Private equity funds are continually searching for places to park cash where they can get a good, inflation protected return - sooner or later one of them will notice the near term upside of OBE and may make a solid offer to take it private. How much would they pay for $2 in free cash flow per year? How much for $4?
12. If Private equity doesn't act, then sooner or later the Reddit crowd will catch on