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ThanksAndYouAreWelcome

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  1. Like Myth said it's tough to point to one metric. Some are expensive at 2x cash flow, others cheap at 10x... I would point out only looking at boe metrics (6 to 1) or just netbacks (what about capital?) are sure ways to make bad choices... Also, there are lots of value traps. It's tough to be a value investor because so many of these companies require equity that if they need to raise money at a low value or are increasing debt faster than proved reserve value the real "cheap" ones turn out to be value traps. Also, the businesses are so capital heavy it's tough to use NAV only because valuation is very dependent on its capital program. This has led me to only want to own concentrated positions with the best management teams. So I start by researching the people, seeing how much they own, look at past businesses they have run and decisions they have made at different times in the cycle and other things like that. If you can buy a company below PDP value where the engineers assumptions look conservative this is the closest you'll find to a net net (if they're spending program isn't destroying value). I like to use recycle ratios using cash flow netbacks and go-forward PDP FD&A as a proxy for profitability, although you have to be really careful the assumptions are good...I like to also be able to model out the implied returns for ~3 years using some conservative assumptions way below what the market thinks and see the business still makes me a return... If I had to pick one metric / way to look at it, I'd say once you're comfortable the business and management likely isn't going to destroy value, if you can buy production and reserves in the market for less than the company can replace them for you're probably getting a good deal, didn't do enough work on the first part, or the production and reserves aren't worth replacing. Which ever one it is, if you did the math right and you got there, 1/3 it could be a good one and just a bit more work to find out if it is!
  2. What do you see as the one foot bars? I think there is value (as a whole) in Ithaca, Pine Cliff, Crocotta, Long Run, Bellatrix, Zargon, Manitok, CNRL, Athabasca, Encana, TransGlobe, Legacy. I wouldn't want to just own one, but I think a group of them will work out fine over time. I agree on the group, a few will be taken over and you will win overtime vs owning one and holding. What do you think of Iona Energy Inc. As a stand alone, I haven't done enough work on it (management, decommissioning liabilities, asset history, etc.), but at first glance it looks good.
  3. What do you see as the one foot bars? I think there is value (as a whole) in Ithaca, Pine Cliff, Crocotta, Long Run, Bellatrix, Zargon, Manitok, CNRL, Athabasca, Encana, TransGlobe, Legacy. I wouldn't want to just own one, but I think a group of them will work out fine over time.
  4. I hear these points and think they are good. I just have to ask you a couple more questions if I can? Not as important, but I didn't think that there is a relationship between size and valuation over around $1.5 billion? Otherwise why does WCP and BNE trade at a premium to CPG? Or SGY trade higher than LTS? Also, if diversification is bad, why does KEL trade so high a valuation? Why has RMP done so well? And why did CPG do so good for so long? On PWT valuation, I'm curious how you get to a ~$18-19 NAV valuation, that would mean you think they should trade at ~10x EBITDA, or above every single other oil guy in the whole Canadian oil and gas company? I like your point on increasing the netback, but don't you think that is partially due to the nature of the asset base on not just how they've spent money? They might be able to increase the netback to $30, but I wonder what happens to the decline rate if they do so, and if you run the math, that assuming they can achieve efficiencies at a strong oil price it still means they would have to spend a whole lot more money than what they are making... you basically have to ignore the debt. I do agree size can be an advantage, that could work out for them. I also agree the team there looks to be really good... I am however scared this is a situation where a management team with a reputation for brilliance tackles a business with a reputation for poor economics... I hope you guys are right, but I just think there are 1 foot bars to step over in this space and this one looks like a high jump. Let's cross our fingers they can sell the Duvernay and oil stays above $100!
  5. On Penn West again, I don’t disagree that they will be able to make themselves better, I just don’t get how this ultimate creates value for an investor at the current share price. For example, if I take the optimistic end of their guidance for 2013 ($35,000/boepd and 20% decline), they need to spend ~$980 million to just hold production flat at ~140,000 boepd. Add on over $270 million per year they need to pay in dividends (including the DRIP), and that means they need ~$24.50 per boe cash flow netbacks to just hold production flat and pay the dividend without having to add on debt! Last quarter they had cash netbacks of $21.80 per boe when Edmonton light oil was over $90 CAD per bbl! I look at how steep the curve goes down in the future for oil prices, I look at how their decline rate will likely go up as they drill more in the Cardium, I see the risk they’ll have to cut the dividend again if they sell cash flowing assets, I see little chance for them to sell assets at values higher than what the share price would suggest they’re worth, and then I see net debt three times larger than cash flow and an EBITDA multiple of seven times! Yeah they will be able to sell some assets and make things better operationally, but I don’t know how the turnaround investment makes sense from a value perspective? What is a fair value range for Penn West? I think the oil patch is on sale right now but don’t get why someone would pick Penn West relative to a TORC or Whitecap for example? It makes me wonder what people are seeing in Penn West’s valuation I am not…
  6. How do you think PWT is going to turn-around the story? The reason I ask is that I have a hard time believing they can fix the leverage issues in this market, and with them trading as high as they are, even if they can sell assets I don't see how the valuation compensates an investor for the risk. Any color is appreciated.
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