1. Value: With the recent disposition, Trilogy disposed 12 sections and 800 BOE for 45mm. So the acquisition metrics are $5800 per acres and $56000 per BOE. Now anyone who knows about valuation will tell you that's a pretty good deal in today's market. Trilogy has around 600,000 net acres of land so using these metrics you get 3.5 billion market value and take out 0.7 billion in debt ~$16/share (we are at less than 0.5 billion today!!). Okay thinking 5800 per acre is too high slash it in half and you get 1.75, take the debt out and we are at ~ 1 billion ~$8/share.
Don't like the acres valuation, let's take a look at the BOE valuation. Trilogy's current prod ~ 28000*56000 = 1.6 bil ~$7/share
Don’t like BOE valuation okay let’s take a look at cashflow valuation. Cashflow right now is ~34mm*4 = 136 mm with the norm 10 times multiple you get 1.36 billion ~$6/share
2. Debt & Cashflow: Debt is at 0.7 billion and cashflow right now is ~34mm*4 = 136 mm. So the ratio is 5:1, the norm used to be 2:1 was good covenant by banks, in today’s market 3:1 is acceptable. So yes Trilogy’s debt is high and it has to be reduced. But does the high debt justify this low stock price? Yes and no. Yes before this release and no after this release. Trilogy has 200 sections of Duvernay for exploration. Just to put things into prospective, Exxonmobile bought Celtic (similar to Trilogy in size and assets) for $10,000 per acres. Now these were the good days. Trilogy can sell the Duvernay assets for 2500 per acre, that’s 384 mm which can be used to reduce the debt to acceptable levels. So I see the debt as a problem but I don’t see it bankrupting the company because the company has some great assets that it can sell to reduce the debt and then live within cashflow.
As some mentioned the 3000 bbl at 77.18 for 2016 is an amazing deal
| | 3000 | | Sales | $ 77.18 | | Transportation | $ (6.00) | | Royalties | $ (3.50) | | Operating Costs | $ (12.00) | | Operating Netback | $ 55.68 | | Interest | $ (3.37) | | GNA | $ (1.35) | | FFFO | $ 50.96 | | Annual FFFO | $ 55,801,200.00 | | CAPEX* | $ (25,000,000.00) | | Net | $ 30,801,200.00 | | | | *Let's assume 33% decline rate, so Trilogy will need to bring 1000 BBL to cover this 3000 contract. Using 25000 Capital efficiency we get 25mm as capex.
Read the above again, you get 30.8mm in cashflow (yearly) for the sale of 3000 BBL. To put things in perspective, we got 33.8 mm this quarter (135mm yearly) for the sale of ~29000 BOE. This means 10th of the production will provide extra 22% next year.
3. And just to sweeten things a bit, Invesco, an investment bank, just filed an alternative monthly report showing they just accumulated more than 10% of the company’s. Given that 50% is owned by owners, this means 40% of shares are being traded which is an extremely small number for a public company. This means good news make people compete for this stock as there is not enough.
So what’s the takeaway, this company is hugely undervalued, has good assets to sell to reduce the debt and has good cashflow to live within for years to come. Patience pays, I won’t be a seller at sub $4/share! | | |
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