RE:RE:RE:Performance bonusJust razzing John. I appreciate your posts and all you do on this board.
Although OBE is likely to test near 10 or under 10 before Q2 results are released.
JohnJBond wrote: Why do I need to provide support? The market will do that itself.
Daily price changes don't affect me. I have my position. Occasionally I may buy a few thousand more when I feel the price is just too good to ignore.
I'm not intending to sell until Frontfour has accomplished its job.
In my view, OBE is moving in steps. It was in a $9-12 zone since around the end of Q1.
Earlier this month, it broke out of that zone getting to the mid C$15's.
I think its in a new zone now as we exit break-up and get back to 3 rigs drilling full time - something around $11-16.
Later in the year they will move to 4 rigs drilling - by then I expect it will be in a new zone.
I expect OBE's share price to climb as if it were walking up a staircase. Each stair is a new range. Its slowly moving up this staircase - the pot of gold is at the top.
I'm amused (I probably shouldn't be), that the management performance bonus program that so richly rewarded management to the tune of $23 million ish in Q1 - works the other way too. If today were June 30th, they'd be getting a negative performance bonus this month.
For some reason, I really like the idea of a negative preformance bonus when share prices decline. When was the last time you heard about a performance bonus like that? Performance bonuses almost always add to base pay, they don't often substract from it. I think they should, and OBE's version does!
If you want to light a fire under a management team, take money away from them if they don't deliver! Thats what happens at OBE!
Right now they are likely working hard to get the refinancing done. We don't know what obstales they are dealing with.
Different obstales can lead to different paths with different results.
In my view, all possible paths are positive. (this is one of the critical success factors for my investment choices )
Consider the options.
Whatif.... If they can only refinace at an interest rate they feel is too high - like 9% or something higher than their banking syndicate wants. What do they do?
Option 1 Well lets say they decide to stick with the banking syndicate and use all their free cash flow to pay it down to nothing. In Q1 of 2023 they'd have zero debt - followed by a boat load of free cash flow.
Option 2. They split the debt into senior and junior, with a high interest rate on the junior and a low interest rate on the senior. Then use all their free cash flow to pay off the junior debt. They will probably have this done by the end of Q3. NOTE - this is probably what is happening. They probably need about $325 million in debt, and they've told us they view $225 million as their target long term debt level. Translation, $225 in senior debt at the lowest rate possible, and $100 million junior debt at a higher rate. With the intention of paying off the junior debt asap (ie by the end of Q3 or start of Q4 depending on how fast revenue is collected).
Option 3. They split the debt into Senior debt of $225 million, and use the banking syndicate for the remaining $100 million ish - then pay the banking syndicate off over Q3
Option 4. They can't get any kind of attractive interest rate for long term senior or junior debt, so they have to go back to their banking syndicate - but the banking syndicate doesn't want them to spend as much in capex in H2. Lets say the banking syndicate doesn't want them spending $150 million in capex in H2, and wants it cut back to something less - lets say $50 million for the point of argument. That puts them back at their initial forecast production for 2022, and probably gives them eneough free cash flow to pay off the debt entirely by the end of Q4. ie, they do what they were doing to do in H2/22, in H1/23. They are a few months behind on their target volume, but get to make up for it quickly in 2023 - and make more free cash flow doing so.
These are just a few hypothetical senarios they may be facing presently. They range from doing the refinancing they previously discussed, to sticking with their banking syndicate - that is the entire spectrum of options. All of those options lead to a positive ending.
Do I care that OBE dropped 10% today - not at all. I'm only interested in what is at the end of the rainbow. If I step in the puddle on the way there, its not going to upset or distract me.
For some reason I actually like the idea of OBE closing on June 30 at less than $11.08 (thats the Q1 closing price). If you want the management team to change its performance bonus program - then they need a reason - and a negative performance bonus is a pretty good reason.
As discussed elsewhere on this board, I think OBE has generated a lot FFO in Q2. If Oil trades for $90-100 for the last week of Q2, thats not going to make much difference to the Q2 FFO. If they have to add back some of their Q1 performance bonus, well then Q2 FFO may be even better!
All of that being said - it will be interesting to see what the June 30 closing price will be. Will it get bid up above $11.08 by person or persons unknown? The next week will tell.
What we do know from the most recent presentation - a $1 change in the share price equals a $3.5 million change in FFO - and that goes both ways. Add $1 to the share price means lowering FFO by $3.5 million. Lower the share price by $1 and add $3.5 million to FFO.
I'm actually more curious about how closely OBE trades with the likes of BTE and CNQ. Look at the intraday price movements of those three - they are nearly identical. That looks like algorithum tracks to me.
I'm also curious about the WTI and Brent prices. They dropped last night - for no apparent reason. They dropped when their respective markets were sleeping (they trade around the world, but the most active WTI trading happens when the US traders are at work). Same with Brent. Biden said he would use all available tools to lower prices. Any time you see prices drop while their main respective markets are sleeping, when there is no event to explain it - it may be manipulation.
Manipulation doesn't last for long. Its like trying to hold a beach ball underwater - maybe you can do it for a short time, but it won't stay there. Just a couple of days ago - I think Thursday of last week, the open interest in WTI was the lowest it had been in years - since 2016 if I remember correctly. Thats what an oversold market looks like - and presumably its got more so since then. If thats right, there may be a snap back.