Cardboard
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Posts posted by Cardboard
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I mentioned something similar in a post a while ago. Back in the days, you could find good information in the annual letter: pensions being underfunded, accounting gimmicks, the need to expense options, this one on the deficit. You felt that the guy was fighting for the good stuff. Not liberal, not conservative, but the right, logical, common sense stuff.
Cardboard
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The problem with LTS is leadership. Until Wright is gone, there will be no confidence on the Street. I have seen some analyst comments and it is pretty obvious. They have been burned dozen of times by his rosy forecasts and the one published today still feels like it to me.
Unlike PWT, I don't think that he gets the message yet. He is still going after Swan Hills instead of putting that on the back burner for now or even selling it. Just cutting capex by a further $200 million and eliminating totally the dividend would give enough cash to buy back 20% of all shares under a Dutch auction. That is much more than what will ever be accomplished by this full $600 million capex program. Now, of course this wouldn't reduce debt, but the extra capex spending won't either since the majority is for new wells with high initial declining rates.
At least they seem more serious now about improving operations with the gas injection program but, I won't hold my breath.
Cardboard
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Delayed restart of this refinery in Indiana is also playing a very large impact on spot differentials that we are seeing now:
http://www.reuters.com/article/2013/10/29/bp-results-whiting-idUSL5N0IJ37920131029
CNQ mentioned recently that differentials to WTI will come down dramatically once it comes back on line.
To give you an idea about the craziness in spot prices in Alberta, WCS (Western Canadian Select or heavy oil) went up by $6.68 yesterday and the SCO (Synthetic Crude Oil or light) went up by $2.98.
Cardboard
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I don't know that much about CHK, but if you only compare SD with PWE and LTS on an Enterprise Value to Sales basis, you see right away a discount. Then consider that SD is mainly involved in a play that is in development vs defined, then I would say that their potential but, also their risk is higher. Both PWE and LTS have 100's if not 1000's of drilling targets for oil already known. It is more about execution than exploration. The Mississippian play is also nowhere near the oil content that PWE and LTS have. LTS is 80% and PWE is 65 on its way to 80%. So far SD is happy when it finds 50%.
A big advantage that SD has at the moment is a narrower discount to WTI than its Canadian counterparts, but it is also in an area where the infrastructure is not in place which is quite different than what you find in the Cardium for example. That becomes a big problem especially if you produce a lot of natural gas than cannot be flared or shipped by rail.
Cardboard
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"are you guys worry about widening differential?"
That is a big problem, however I think that the market at the moment is more than discounting this issue. There is also a lot of focus on "spot" discount by investors vs longer term contracts.
It is pretty clear that the U.S. has benefited tremendously from the increase in oil & gas activity over the past several years. Without it, I don't know where would be the unemployment rate but, I would hazard to guess that it would be appreciably higher. Just think how much this has helped GE, even Buffett with Burlington. Demand for housing, steel, motors, pumps and all kinds of industrial outfits.
The other benefit, especially recently, is a large decline in WTI and gasoline prices. This is another big help for U.S. consumers. There is more oil produced locally and this helps. However, if WTI keeps getting lower then the pressure that you are seeing on Canadian oil producers to cut costs, spending and rationalize will also apply to U.S. producers. This will mean less employment created by oil & gas which has to be one of the few "new" and bright spots in the U.S. over the past 5 or 6 years. So there is some balance in there.
Now, the approach that has been taken by Obama to block the XL pipeline so far will likely backfire. Not only is this creating issues for Canadian producers but, also for U.S. producers in northern states which are forced to sell their product at a discount and to ship it by rail. The longer this goes on, the higher the pressure will get on the Canadian government to build the TransCanada East project and the Western one from Enbridge. Canada cannot afford to sell its product forever at the lowest worldwide price and being also one of its largest industry.
Once approvals are in place and this is progressing, the discount will narrow and especially on longer term contracts. Eventually, it will mean higher gasoline prices for U.S. consumers than now and I suspect that some U.S. oil in the Bakken and other plays will ship out globally from Canada. I also envision a future push from U.S. producers to build more pipelines to get the additional oil out. They won't accept either to be "trapped" and to sell their oil for a pittance while it could be sold well north of $100 on the international market.
Cardboard
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Absolutely!
Net asset value is well into the teens.
You have a leader that will do what it takes to make this company succeed unlike previous leaders. Also, was COO of Marathon or a company 5 times PWT size.
Don't forget that Rick George is Chairman and probably has zero intention to get his reputation tarnished by this company. Also, Allan Markin was on the board for a little while and bought $20 million worth of shares. He apparently visited all operations and made recommendations. The reason for the departure was unclear, but he kept all his shares and left in good terms. There is speculation that it might have something to do with his previous job at CNQ.
The strategy is actually pretty simple: focus on your most profitable assets and where you can have some scale. The rest which earns little is to be divested to pay off debt. They already have sold $485 million worth of assets and plan for $1.5 billion in 2014. Debt to cash flow ratio already looks quite a bit better and I like their strategy of not entertaining fire sales. The Street is disappointed because it was expecting a much quicker exit and somehow thought that boe/day would stay flat while disposing of assets???
Eventually, the company will have very little debt and produce 80% oil and natural gas liquids at high netbacks. I doubt it will be around that long especially if it keeps trading at these prices.
Cardboard
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In terms of the market sniffing it out, gold and Brent oil remain stubbornly high IMO and that has something to do with it. Although, there has been no recent spike since the timing is so unknown. I think some of you are now giving way too much credit to Mr. Market. Many takeovers are not even detected despite insiders knowledge.
Regarding Israel acting quitely on its own, it has done it twice before against a nuclear threat and many times against conventional targets in Syria. I would not underestimate their will.
Finally MAD does not work here. Israel does not have the capability to exterminate all its enemies if it is attacked. As is mentioned in the article, it is a "one" bomb country. Weather it is carried out by Iran, Hezbollah or some other group, the consequences to them are fatal while most of its enemies would survive. Other global players negotiating don't have at all a similar threat over their head.
Cardboard
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IMO, a strike on Iran by Israel in the near future is approaching 100% probability. There is another round of negotiation coming up on November 20, but again IMO, the new president is just trying to gain time.
He did it in 2003 so why would it be different this time? Do you really believe that sanctions which hurt the small people of Iran are changing the mind of the regime and their hate for Israel and the West? From what I have read there are only 8 countries that enrich uranium and dozens that produce energy from it. What is their purpose to enrich or to develop that capability? They are so close now that unless they totally give up on the program, they are still advancing and that has to be for one purpose only.
This article/interview from the former Israeli defense-intelligence is quite informative.
http://www.newrepublic.com/article/115313/amos-yadlin-iran-strike-why-israel-needs-act-soon
Of course, oil would rally hard under such scenario. It may back down afterwards since global demand could drop with economies hardly able to absorb such shock. One thing is certain, volatility and fear would rise dramatically from today's level. The market hates uncertainty and that is about as bad as it gets since consequences and actions that would then be taken are unknown.
Cardboard
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How big of a risk is this in your view? The operation is starting this November or about now.
There are many articles on the topic which for the most part seem alarmist. They talk about the risk of the pool to collapse and if rods contact each other during removal that it will create an uncontrollable chain reaction with some calling for the Northern Hemisphere to be radiated!
IMO, the risk of a pool collapse are largely exaggerated since they have reinforced the entire structure and made a new roof and outside walls. Another large earthquake, tsunami or typhoon could add risk but, I would like to think that they thought about that. What is scary is the amount of tanks that they now have outside the plant to hold millions of gallons of contaminated water. Have a look at pictures, it is quite amazing! As for the removal, it won't be done by computers as it is done normally but, manually which could introduce the possibility of human error.
One thing I must admit is that I had no real understanding about the risk of a pool collapse or how big of a deal it would have been on a global scale if they had not been able to add water to the pool. I was mostly concerned about the reactors or a meltdown a la Chernobyl during the press coverage in 2011. I don't recall the media mentioning the fact that the pool was sitting five story high and that a large percentage of these rods were not fully used since that reactor was down. The risk of the pool to come down at the time was likely much larger than today and I feel shameful to not have appreciated how big of a deal this would have been. We came very close to some form of apocalypse.
Cardboard
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15% CAGR "guaranteed" according to Gio...
Now, let's consider some facts or the last 5 and 10 years returns in book value growth per share per the annual report:
5 year: 10.5%
10 year: 11.7%
An easy observation is that the percentage is probably declining in the most recent period due to the larger size. Another easy one is that both starting points were very low or depth of the abyss at the beginning of 2003 and beginning of 2008 or before the financial crisis started.
So somehow, we are supposed to believe that future years will be much better than prior ones? By the way, I was also involved when the percentage goal was dropped from 20 to 15%. Is 12% coming? 10%?
I was also challenged and maybe insulted in another post about my attitude towards Fairfax and my "lack of respect". Well, let me state some observations to justify my view which are not at all emotional but, based on real information and simple math.
1- I have said for years that Fairfax structure or balance sheet is at a negative disadvantage. There is little invested in best return assets or stocks and businesses relative to shareholders equity. At least much less than at Berkshire. This is the result of carrying on too much debt, risky assets such as reinsurance and a fair amount of latent liabilities such as asbestos all of this leading to mediocre insurance ratings preventing the deployment into more productive and best return assets. I see no desire to reverse this and this hurts ROE.
2- We have been told for years that the focus is on improving combined ratios. To my knowledge, Fairfax has only achieved over the last 10 years below 100% combined ratios during hard markets and when no cat losses occurred. My conclusion was that the company is an average insurer in terms of underwriting profitability and that Mr. Watsa should have identified that the goal of the company was to amass float, minimize costs or at best make an underwriting profit but, not to keep creating this impression that we are all about making money on the underwriting side. Strike one for me on the "trust" front.
3- As Al and others have stated many times, the tendency to invest in poor businesses is creating unwanted issues and degrading the prospects for higher returns. I agree. It is also reducing insurance ratings since there is no visible, stable, recurring cash flows coming from what is considered the most risky part of the investment portfolio. I am also quite concerned about these large contrarian and macro bets. It has worked a few times, but there is no guarantee that it will work again, at least to the same extent.
4- I will bring up one point that I have never seen challenged or discussed on this board. Prem is apparently a multi-billionaire according to Forbes and others. I am sorry but, did anyone find out how that came about? He holds roughly 1.8 million shares of Fairfax through Sixty-Two (if he holds at 100%) and personally which is about $800 million. I can't remember which annual letter, but it was stated that he held over 90% of his wealth via Fairfax. So with the annual dividends, his small salary and his initial 10% outside Fairfax, he has made well over a billion$? I am not saying that there is anything nefarious here, I would simply like to understand how it was done and if the multi-billionaire status is accurate. It would be very interesting to know also when it was made since Fairfax could have badly used insider investment at a few times during the lean years when we signed dilutive deals.
5- The Fibrek/Resolute saga. Strike two on the "trust" front.
6- Continual praise for Tom Ward. Strike three on the "trust" front.
7- Blackberry involvement: Prasing Heins and never publicly challenging the board if things were thought to be heading badly or if the strategy seemed wrong. The Street would certainly have listened and be ready to help. Offering a low ball bid. Firing Heins, so apparently the strategy was all wrong. Not making good on the bid despite "guaranteed" type statements and putting reputation at stake. Investing more into Blackberry despite saying no previously to concerned Fairfax shareholders.
#7 was the last straw for me. While I hold no share of Fairfax since a long time, I held a small position in BBRY thinking that Prem's word was solid. Now, caveats are coming out or that an LBO was not right, etc. Trust is something that you don't play with me. Once it is broken, it is for good. If you say that you will do something, you do it. That is how I deal with friends, relatives, strangers, etc. I don't see why I should make an exception here.
Cardboard
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I have never read a further word from Biglari or about his actions on this board since Steak N Shake changed name. Fairfax and Prem are now in the same camp. Some quotes are in order:
“We’ve got a track record of 28 years of completing what we’ve done,” Mr. Watsa stressed in an interview with The Associated Press.
“We’ve never renegotiated.”
“We thought long and hard before we offered $9 a share and we’re not in the business of offering a number and at the last minute changing the figure … Rest assured when we do this it won’t be done to split the company.”
“We wouldn’t put our name to such a high-profile deal if we didn’t feel confident that at the end of the day that our diligence would be fine and we’d be able to finance it … Short term these things fluctuate, there is speculation one way, there’s speculation the other way. We never pay too much attention to the marketplace.”
Mr. Watsa said Fairfax won’t put in anything more to the offer than the 10 per cent of BlackBerry it now owns.
“The 10 per cent is like $500-million,” he said.
“It’s a significant amount of money. We’re going to bring equity partners and we think the company will be very well capitalized.”
Cardboard
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Although, I really don't care who wins, I can't stand that Gomes guy at bat. What is wrong with his hat? Does he have lice or something? :o
Cardboard
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You will not get now the kind of frenzy as in 1999 - early 2000 or almost everyone being on the same side of the boat since memories from the following crash and the more recent one in 08-09 remain too fresh.
When to get out now will be a lot more difficult to assess but, we must be getting close with the kind of move that we are seeing today in Amazon, NFLX over the past few days, TSLA, Twitter IPO, IPO's that double on first day, etc. I look at many charts each day and there are a ton in parabolic ascent: tech, non-tech, industrials, etc. Fear seems certainly absent.
What is very unfortunate is that if a crash occurs or a bear market starts, most and close to all stocks will be taken down. That goes also for mine that remain undervalued on a relative and absolute basis. To sell them now in the anticipation of a bear does not seem like a sound strategy and has certainly not worked out for those who have moved heavily to cash earlier this year or even last year. Puts have not worked out either.
The more experience I gain, the more I think that the only worthwhile strategy is to keep a cool head, take profits when you get close to fair value on individual securities and be ready to sell cheap stocks for cheaper ones if the opportunity presents itself.
Cardboard
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""Buy Low and Sell High" and, since you can't do the former on a consistent and guaranteed basis, make sure you bought really low."
That is exactly what margin of safety means. Buffett also mentioned fat pitches dozen of times and did compare it to someone entering a room who is obviously overweight to everyone. It has to be really noticeable, a large standard deviation.
Interestingly, by buying something really cheap, you do protect your downside by giving yourself a chance that the current price paid could end up being close to the real intrinsic value. So you could exit with little damage. But, you also put the probabilities on your side with having something so undervalued that you are exposed to the highest returns available.
Cardboard
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I would like to find out as well what the company in question really is.
I would like to know also the company that Sanjeev mentioned trading in Canada a year or so ago at net cash, not burning cash and liquid.
Cardboard
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There were bargains to be found every year but, it wasn't available among U.S. large caps which were very popular at that time. Night and day from today where you can buy a IBM for 11 times earnings. KO was like 50 or 60 times earnings vs 18 today.
The summer of 1998 was really bad for value stocks. They took a big hit with the Asian crisis and the Russian default while they were already cheap beforehand. That is the summer when I read the Intelligent Investor and could not comprehend that stocks were selling for net-net amounts during the 50's and 60's. I was thinking that with the availability of information that these had disappeared. Interestingly, net-nets returned in 2008-2009!
Then after the crisis, Greenspan really put the pedal to the metal and he had another reason to fear or the Y2K bug. Most stocks rebounded and the Internet and tech ones got into the stratosphere. There was also a big difference where big blue chips stocks like Canadian banks and Coca-Cola did not lead the market anymore despite remaining expensive. It was all about techs. I was mostly in cash late 1999 early 2000. I doubted myself but, there was very little value to buy. It was a much easier call to go to cash than today.
I remember telling a friend in February 2000 who had participated in the bubble and who timely realized it, that precious metals and a S&P or Nasdaq put were likely the cheapest assets on the planet. I made very little out of the puts but, the cash came in very handy as the market started to correct and brick and mortars got even cheaper. I also loaded up on cheap gold and silver stocks.
Cardboard
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"Cardboard,
let me ask you a question: have you ever managed a business of your own?
If you have, you know at least as well as me that most technical aspects are beyond the man at the helm (furthermore, Mr. Watsa hasn’t ever been at the helm of BBRY!). I manage my businesses finding good and reliable technicians, whose work I can barely evaluate and judge... It has always been this way, it has worked pretty well, and it will always be so.
Believe me: Mr. Watsa doesn’t know anything about new phones… And has never pretended otherwise… "
FYI, I have had two small businesses and I have worked for quite a few years for a Fortune 100 company. I know very well how is managed the appropriation process at big companies having written many myself.
Any time the amount requested for a project exceeded a certain threshold, the appropriation had to be signed off by the CEO and the board. So to say that the CEO in this case and Prem knew little about the phones or a project of that magnitude then I must say that you are very wrong.
This was a bet the farm type project. Everyone had to sign off on it all the way to the top. It is actually very important for someone or a group up there to make the final decision about go or no go since there are many functions involved including: sales, marketing, engineering/manufacturing, finances all coming up with their own forecast about cost, sales, etc.
This "project" was not an engineering failure. To my knowledge, the phones work fine and manufacturing costs have been in line. It failed because it did not address a "demand" in the marketplace and was likely pushed because of sales and marketing typical rosy forecasts. It is up to top management to figure out if things are realistic and to ask the right questions to their team. It was also top management's job to stop the project or steer it in a different direction if they found flaws during the execution.
Blackberry was about a keypad and secure e-mail in the mind of most. What did management expect coming up with a phone that looked very similar to the IPhone but, released 2 or 3 years later? So if there was no device that they could come up with using their strengths or differentiation points, then what was the point of sinking billions of dollars into this adventure?
So for those who hate the micro-managing part, I do believe that for companies such as Blackberry and Apple who rely on just a few devices to ensure their survival that for the CEO to understand its product inside and out is crucial. He does not have to know the software code, but at least be able to question his team about the benefit of such and such for their consumers.
Cardboard
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"It is unfortunate for Blackberry shareholders that bought at higher levels and I feel for them...but they got bailed out at $9...how pissed should shareholders be at the management of Blackberry...that is where people's anger should be placed."
They should be pissed at the board too and who was on the board since January 2012? Prem Watsa. He was hailed as a hero coming in and he voluntarily offered great praise for the new CEO. If he didn't like what he saw or the direction, then he should have resigned as protest much earlier and tried to salvage the value as he is now. What happened? Was that good for Fairfax shareholders for him to stay on the Blackberry's board for so long and say nothing?
So people may say whatever they want. IMO, he does bear some responsibility for where BBRY is at the moment. It is obvious to me that a ton of effort has been put towards the new phones and it has been a major flop. He had to be a supporter until he found out too late that this would not work.
Now, I am very happy that he is now putting the reputation of Fairfax at stake in this take-over bid: never dropped the price of a bid and always moved forward. I am still confused as to why the due diligence comment was placed with such emphasis in the take-over release. It is pretty unusual.
Cardboard
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"A few more percent drop and I will Arb this situation."
Sure, and Prem will drop his bid to $6... He will then proceed to sell each piece at well above $10 but, outside the public eye since these things can only be done privately? Righhhhhht!!!.
Cardboard
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You live in a bubble Giofranchi.
"Mr. Buffett showed the world, is that Fairfax’s business model is one of the very best."
That is exactly what Al and I are trying to tell you or that he is not following the model. Go compare the numbers and see what percentage of shareholders equity is invested in stocks and businesses at Fairfax vs Berkshire. And even if he was less bearish, he would not even be able to come nowhere near close to Berkshire ratios because of ratings.
"The business model will do the rest, and Fairfax’s BVPS will compound at 15% annual for many years into the future."
The numbers are not indicating that such results have been achieved. P208 of the 2012 annual report shows that per share growth in book value is 10.5% over the last 5 years and 11.4% over the last 10 years. You can add up the dividends if you want but, we are still a long way from 15% and just missing by 1% over such long periods is almost impossible to catch-up.
Of course you can look at the numbers all the way to 1985 but, just keep in mind that you will never enjoy these results since they were made when Fairfax was tiny and a roll-up.
Cardboard
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"The Company’s investments in marketable securities consist of Lightstream common shares (TSX) and
U.S. dollar denominated 8.625 percent senior notes."
Interest and dividends received from Lightstream are Petrobank's only source of income.
Cardboard
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Fairfax is expensive and there is no pessimism surrounding the stock whatsoever. I would argue that it trades at a premium because of the hedges and perceived safety vs actual results.
I have sold all my stock a few years ago and never looked back. They made money on a macro bet that paid off in 2008-2009 and it has been it. All the rest of the money made since then has been pretty much destroyed by another macro bet or a short of the S&P at 1,000.
Now some people seem to think that if the market drops a lot that they will make a ton of money but, what will happen to their common stocks or bonds? What if the market keeps going up or stays stable? If you are looking for a true hedge: be in cash.
IMO, they are addicted to these macro bets having been very successful in the past and are too much in love with bargain basement stocks. I agree fully with Al that deploying capital in cash returning businesses vs cash sucking businesses would have been a much better strategy. This strategy also has another benefit which is to improve credit and insurance ratings by having measurable, stable cash flows coming in year after year.
The way the company has turned out is indeed very disappointing to me. I was there defending it during the dark days of late 2002 and early 2003. Then again all the way into 2006. I truly thought that the lesson of buying bad businesses such as TIG and Crum & Forster had been fully understood. 7 years later, it is the investment portfolio that is a mess with large macro bets and more crappy stocks than high quality ones. Mr. Watsa is still being called the Buffett on Canada but, if he keeps going down that road, it is the reputation of the bad businesses being acquired that will stick. I also find unacceptable the way minority shareholders of Fibrek and Blackberry have been treated. Buffett did not have to turn to such tactics when he acquired a Heinz for example.
Cardboard
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Well, let's make a comparison with WCP.
First of all, WCP is much smaller than PWT and is considered an intermediate producer vs a senior producer. Unless we are in a raging bull market for oil & gas stocks, smaller companies always trade at a discount. This is due to them being less diversified and too small for funds. So yes, WCP looks no more expensive than PWT and maybe cheaper on a profitability standpoint but, my second point will show that they are about as good as they will get. With NAV estimates in the $18-19 range, PWT trades at a very significant discount vs what you will find with other companies of similar size.
When one compares how profitable WCP is vs PWT on a cash flow/boe basis or around $38 vs $21 and then looks at the proportion of liquids produced: 71% vs 65%, then it becomes clear how mismanaged PWT has been for years. It is not that they are producing too much natural gas (this will be improved nonetheless), but that they are fat and have allocated capital to fields not profitable enough. The goal now is to spend 90% of capex towards light oil and on best ideas. There is no reason why PWT should not have a cash flow/boe closer to $30 considering their assets. Size should also be an advantage and not the opposite.
So the entire proposition is about making the company smaller, changing the culture and capitalizing on what they own already. What they will be able to sell and at what price will also make a big difference on the debt ratio which is a big concern for investors at the moment. Mr. Roberts has the experience and will to get this done and has full support from the board which includes Rick George as mentioned.
I would also not forget that Allan Markin was on the board for a few months and bought a very significant stake in the company with his own money or well over $10 million. These are two stars from the Canadian oil patch, both officers of the Order of Canada and who know how to manage properly an oil & gas company. Mr. Markin also visited most if not all PWT properties and made many suggestions on how to improve things. His cost cutting mantra and vision is perfectly in line with the one of Mr. Roberts. His departure looked bizarre but, it could be linked to his past involvement with CNQ which could be an interested player in some PWT assets or all of it.
Cardboard
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As a reminder to some of the responses, my post was made on June 26. Since then the "study" list has performed as follows:
ARN up 45%
LTS down 10%
LEG up 30%
LRE up 47%
PWT up 4%
SGY up 17%
So some are no longer as attractive as they were.
ARN is very speculative since it is a land play on Swan Hills which is a new development area. CPG and LTS both own slightly under 20% each of the company.
LTS is highly mismanaged IMO with Wright keeping debt and the dividend too high and showing little drive to cut cost and apply capital spending restraint. I also suspect a conflict of interest since the high dividend allows Petrobank to survive and keep alive the "dream" or Thai process.
LEG is phenomenal with great management and some of the highest netbacks in the industry. A good comparison is WCP which trades at a much higher multiple most likely because it pays a dividend. Still trades at 3.7 times cash flow despite a good run.
LRE is still trading at 2.8 times cash flow despite the large price appreciation. Their focus towards light oil in the last 18 months has really paid off.
PWT is a turnaround story. Price to cash flow at 5.1 times is not that attractive but, they are working hard to change the culture there: reducing costs and focusing on highest return capex. Disposition of assets should bring debt down such as the Duvernay play. The new CEO from Marathon seems very good to me. He really wants employees to think that they are a small nimble firm. He is right since PWT may be big in Calgary but, tiny in the oil & gas world. They have a very good asset base. With the right focus and under a low cost regime, this company will surprise many in terms of profitability.
SGY trades close to 4 times cash flow. This one was interesting to me because of Paul Colborne who is a director and also at LEG and who appears to be a savvy oil & gas investor. It also started to appreciate before all the other ones or from 2 times cash flow so I wanted to see what had happened to make investors take notice.
Another addition to my list is NGL. This company is essentially for sale and trades at 2.5 times cash flow. This company has also moved heavily towards light oil from natural gas over the past 18 months and netbacks are increasing very nicely. The best part is that it owns the 5th largest land position in the Cardium. This area is just north west of Calgary and has been put back to life with directional drilling and fracking. So it has all the infrastructure needed (electricity, pipelines, refineries) and it is 70% light oil (including natural gas liquids).
Cardboard
Canadian oil patch for sale!
in General Discussion
Posted
Look, their cash flow spending efficiency is highly debatable. There was a very good challenging question yesterday in the Q&A. Basically, they keep saying that all their drilling was successful but, cash flow did not show up on some of these wells because they could not be tied up. How successful is that?
These wells in the Cardium could not be tied up because there was no capacity from other operators in the area to accept the natural gas that they produce. Since gas cannot be flared in Alberta, these new wells were shut in. This is just one example of poor planning and execution with this company and this has been going on for a long time. We just hear it now because investors are more critical of them.
So trust overall is broken and I have a really hard time too trusting their outlook. I shall remind you that they still project average production of 47,000 boe/d in 2014 and related cash flow or without accounting for asset sales. What a forecast! PWT took a very different approach.
Cardboard