RE:it is different this time.Flush11 wrote:
hahahaha.
I am stupidly bored at work so please criticize my comments below.
I agree - there will be some sort of demand destruction. I am starting to think about how much aimless driving I do. I am sure others are already being farmore careful. Especially if they dont own any oil and gas! In countries with weak currencies this must really bite.
It is funny to me that Schacter has predicted 20 of the last 3 big oil price drops.He has lost out on way more opportunity versus what he has prevented in investment losses in the past two years. Maybe he learned something after a couple of his BNN picks went bankrupt?
My main investing thesis has switched over to asset value/book value.
Using simplistic math and company numbers- If a company like BNE will free cash flow 165 million at strip prices with current hedges, then the book value must be increasing in value 14 million every month. So this company is worth about 40 cents a share more every month if nothing else changes. Ignoring that is an annual number and Q1 prices were much lower. I said simplistic..not simple.
Strip prices were about 15-18% lower than current prices the last time I looked, so that number is probably more like 50 cents per month for the past month or two and going forward. that is pure book value appreciation - without discussing a catalyst that could unlock dramatic share price moves such as a dividend or buyback, or sale or merger or just a refinancing that allows BNE to do any of the above. Or maybe OBE wakes up and puts in a real takeover offer. ?? Really i just expect big cheques by the end of the year. That is our history.
So even if we do have some big price drops due to a major global recession - and we have only had 3 syncronous global recessions in the past 80 years - how badly will it affect us? What is a recessionary oil price if demand drops a crazy amount like 5 million barrels per day? 80 dollars? And what does Nat Gas drop to? I feel like 5 bucks is the new 3? The bottlenecks are now about connecting production to pipeline, not crazy inventories with no place to go. LNG and Mexico export pipelines have fixed that.
By the time a demand drop is reflected in the price of the commodity how much debt will Bonterra have left on the balance sheet? Spending is grinding lower during summer to hit the annual 70 million number, so debt repayment will accelerate again in a month or so. The last news release said the bank line will be basically paid off before the fall review.
We are in such great shape and getting even better so quickly; that it is really hard to see an iceberg floating around anywhere....?
I don't think a recession will kill demand or the oil price as much as people might think. The Fed clearly is going by old rules of 'increase rates, USD strengthens and oil drops" (a currency play) same old. But it isn't working this time because the market is too aware of production and storage levels (i.e. structural deficiencies) that won't be remedied overnight. In this world of enviro whackos (oil workers were enviro stewards long before today's flakes showed up to save the day), dumb politicians, and excessive regulations 1. oil co's are hesitant to invest much capital beyond maintaining production at current levels and 2. it takes so much time now to even get a highway crossing even if they wanted to drill baby drill it simply would take more time than people think to drill one measley well not even considering supply chain disruptions. Then there's equip and tie ins which also take ridiculous amounts of time with constant resistance to development along the way and having to save anthills along a pipeline ROW.
While I do use technical analysis for buys and sells, they are simply a finality to my investing thesis. So I agree with you that fundamentals are the way to go. However, in oil and gas I also use the "rule of thumb" cost per flowing BOE. Right now, as of today, BNE is trading at about $31K /flowing BOE. In old days they were trading at over double this and many oily names are there today and then some. Sister PNE, dry gas weighted, is trading, as of today, at about $29500/flowing BOE close to where they did original acquisitions. I did well on that bad boy PNE but do not believe their marketcap should be (~50%?) higher than BNE with higher weight towards oil and better larger reserves especially when PNE's abandonment liabilities are almost a 1/4 billion? on the balance sheet. Yes, debt, I get it, but the debt is almost a non event for both companies at this point.
Phil is good at marketing PNE and BNE is still in the garbage can because it's not promoted and of course the dividend (or lack thereof) for BNE is non existent at the moment. I almost wish they'd do a buyback out of spite and tighten up the liquidity even more. Drive out the riffraff and algo's. Could be easily done. As well, like you, I too have thought about a sale. Personally, I think it would be the best route since I seem to be lacking faith BNE will save the day with a decent dividend for some reason. Not sure why, just a nagging feeling at the moment. I almost would prefer to unlock the value today vs. waiting for divi's over time unless the divi is substantial. There are many players surrounding BNE in the Pembina I think GF could sell it easily and at a decent price today. As you note though, as the debt is reduced, the book/value increases so a buyout price would be substantial and glorious.
I am a conservative fundamental investor. When I look at something I do not look for pies in the sky but, for some reason, every calc I do on BNE says it should be double now even without a dividend. I mean as I have said before, even a little $1 dividend at $20 share price is 5% yield. With US 10yr's paying almost 3.5% the market will have to adjust to larger yields in the market (share prices down) or, dividends have to be increased. Most likely the latter given the state of the oil markets and investor demands for ROC.
I don't know, either way it should be over $20 easy and I am not a pie in the sky kind of guy but I am a poet and didn't know it apparently. lol Just need to get rid of B.O. once his shares are in better hands we should trend up quickly.