RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Kavern 23Agreed Hendrick, or is it Mark?
Investing decisions in the oil and gas sector should be made on the probability of a dividend being paid, and the size of that dividend.
There are three elements I give the most weight.
1. The actual free cash flow per share (ie how much is available to be paid and when.)
2. How soon debt will be paid down to a "safe" level, such that extra cash flow is available for something other than debt repayment. I call this disposable cash flow.
3. The probability that the Board will favor a dividend over alternatives like share buy backs, or acquisitions, or hoarding.
I like OBE because they are set to have a lot of free cash flow per share very soon (starting to accumulate in about 2 - 4 weeks when Break Up starts).
I think OBE gets to disposable cash flow in about 4 months
That takes us to 3 above. OBE is controlled by money managers, not engineers.
Engineers are trained (conditioned, programmed - use whatever word you like), to increase production - ie locate, and extract oil and gas from the ground. If you put a team of Engineers in charge of a company, that is what they will do.
Money managers on the other hand, are trained to maximize share value using whatever means will achieve that goal. It could be renegotiating office lease rates; renegotiating loan repayment dates; buying undervalued assets; focusing cap ex on the prospects with the fastest payback; minimizing hedging during an incresing price environment; hedging in domestic currency.
All things that the current Board has pursued and achieved. That is how we know they are not just Money Managers - they are good at spotting where to focus their attention, and successfully achieving the desired result.
Money managers like that, will know that the present key to maximizing share price is maximizing the dividend. That means the probablility is high that OBE will favor a dividend over alternatives when deciding what to do with disposable cash flow.
Its a 1, 2, 3 then done strategy.
Once they get to 3, the acting CEO can apply his skills elsewhere.
To further support this theory, the acting CEO's appointment is set to expire right around the time number 3 will be achieved.
There are plenty of other companies in the same sector, going through 1 and 2.
Some like BNE for example, appear to be going through 1 and 2 at about the same pace as OBE. The difference however is at number 3.
In the case of BNE, I suspect at 3, they will favor share buy backs, growth, debt elimination, cash hoarding and acquistions over dividends. I still think they will pay a dividend, but it will be something small that will not be sufficient to raise the share price. The result being that at 3, OBE is likely to pop, while BNE is likely to fizzle.
Then we have others, like BTE, which is a year behind OBE in 1 and 2
This is a race - 1, 2, 3 to the finish line.
Whoever crosses the finish line first gets a prize.
The prize, is the ability to buy the others - not with cash, but with paper.
That is the next chapter in this story. I can't write that chapter until we get to 3, but I can give you the plot.
Right now BNE and OBE are neck and neck price wise. If they act as described above at 3, OBE may find itself around 3X the price of BNE. That would open the opportunity for OBE to make a bid to buy BNE using shares as payment. An offer to buy at a premium to BNE's current share price likely to result in a deal. It would be accreative, and allow OBE to raise its per share dividend, and its share price - which would set it up to repeat.
Thats what money managers do - it might not be BNE, maybe its BTE or one of the many others that are behind OBE in the race to 3 - but the result would be the same.
Whoever gets to 3 first, has an opportunity to eat the rest and increase its share price each time.
OBE just ate the Chinese minority PROP owners lunch. I suspect this time next year, they'll be eating someone else's whole company - we shall see, when they get to 3.