Multibagger speculative ideas

[persistentone3]

SUNE is one multibagger idea.

 

Massive negative return on equity and return on invested capital.

 

Massive negative free cash flow.

 

Very little top line growth.

 

Had a two year run from $1.50 to the present $30.

 

What is the case for a multi bagger on this?

[persistentone3]

DCI LN- 3rd Point just bought more stock in the offer at 21.  Tough to value precisely but potential for upside to 60-80...

 

What is the symbol?  It's not DCI?  I don't find DCILN as a symbol.  Is it DCI.L?

 

DCI.L has small return on equity and a massive premium to book value.  What's the pitch for this?

[ATLValue]

PGN - offshore oil driller that recently spun out of Noble. The company spun out above $10 last year and now is trading at around $1.10.

 

In my opinion several things are causing the stocks decline, 1) fall in oil price, 2) offshore rig sector has been weak based on speculation that the market will be oversupplied for the next 2-3 years as chinese rigs come onto the market, 3) selling as a result of the spin off, 4) recent debt for equity swap by similar competitor HERO and 5) fears about bankruptcy

 

Market cap: $95M (first quarter operating cash flow was $210M!!!)

 

Debt covenants are 4.0x EBITDA and 3.0x Minimum Interest Coverage Ratio and only apply to the revolver. As of March 31, 2015, the covenants under the Revolving Credit Facility were a net leverage ratio of 2.39 and an interest coverage ratio of 7.90

 

You might want to take a look at what PGN looks like in 2016 and 2017... they have some very high priced contracts rolling off and their rigs are more likely to be scrapped than re-contracted over the investment horizon before this company goes BK

 

I hear ya, it really does come down to what happens when these contracts expire and if the management team can find away to limit the haircuts to the rates. Speculative indeed!

[sculpin]

Mobilicity gets approval to disburse funds from Rogers deal to creditors

CHRISTINE DOBBY - TELECOM REPORTER

The Globe and Mail

Published Monday, Jun. 29, 2015 6:08PM EDT

Last updated Monday, Jun. 29, 2015 6:11PM EDT

 

A judge has approved the distribution of funds in Mobilicity’s restructuring proceedings after the small wireless carrier struck a $465-million deal to sell itself to Rogers Communications Inc.

 

The court’s order Monday was necessary for the companies to proceed on closing the deal, which they announced last week and which already has approval from the federal government and faces no opposition from the Competition Bureau.

 

A group of Mobilicity’s creditors – including its bondholders as well as suppliers including customer-support provider Amdocs, network manager Ericsson Canada Inc. and landlords for its cellular sites – consented to a “vesting” order the company put forth to Ontario Superior Court of Justice judge Frank Newbould.

 

The order, which the judge signed Monday afternoon, will allow Rogers to assume Mobilicity’s assets free and clear of any claims against them apart from the small carrier’s trade liabilities, which Rogers has agreed to assume. The purchase price of the deal is $440-million and Rogers has agreed to assume $25-million in net negative working capital, according to a spokesman for Mobilicity.

 

The order will see Rogers transfer a portion of the purchase funds as a loan to repay Mobilicity’s first lien, second lien and debtor-in-possession (or DIP) financing. These creditors will fully recover the principal they advanced as well as accrued interest and penalties.

 

However, Mobilicity’s total debt stands at about $600-million, according to court filings, and the balance of the funds from the purchase will be distributed to the company’s unsecured creditors on a pro rata basis.

 

Toronto-based private equity firm Catalyst Capital Group Inc., one of Mobilicity’s biggest individual bondholders, was often at odds with Mobilicity’s other bondholders throughout the restructuring process. Even before Mobilicity filed for protection under the Companies’ Creditors Arrangement Act in September, 2013, Catalyst had already launched a lawsuit against the company for raising a round of financing without Catalyst’s participation.

 

The firm struck a separate, confidential agreement with Rogers as part of the overall transaction.

 

There was some delay Monday morning as lawyers for various creditors negotiated last-minute changes to the vesting order. One change to the final order, for example, will give landlords at Mobilicity’s cellular sites – which are often found on building rooftops – 30 days to object to the transfer of their lease agreements to Rogers.

 

Otherwise, the events of the past week have brought the company’s restructuring to a rapid conclusion after a drawn-out process that at times saw stakeholders frustrated with what they saw as a change in government policy, as Ottawa blocked multiple attempts to sell to Telus Corp.

 

Although investors in the wireless industry initially believed they would be able to sell spectrum reserved for new entrants in a 2008 auction to one of the Big Three carriers after five years, Ottawa introduced a new spectrum transfer framework in 2013 and indicated it would not permit deals that increased the concentration of the airwaves used to build wireless networks in the hands of the incumbents.

 

The federal government ultimately approved last week’s deal with Rogers – along with a separate agreement Rogers made in early 2013 to purchase unused spectrum licences from Shaw Communications Inc. for a total of $350-million – in part because the transactions also include the transfer of spectrum licences to Wind Mobile Corp., the last remaining new entrant offering service in Ontario, British Columbia and Alberta.

 

The NAV of the MHY.UN is now being listed as $1.44 as of July 2. No further details have been released.

 

http://marret.ca/marret-high-yield-strategies-fund.html#NAV

 

 

[lessthaniv]

As at March 31/15:

 

81.5% Cline = $29,334,539

18.5% Mob = $6,658,761

Units: 36,729,002

 

NAV = $.98/unit

 

As of today:

 

NAV adjustment to $1.44/unit

Assume no change to Cline

 

Mob Value = $.64/unit

Cline Value = $.80/unit

 

So, we are trading at a slight discount to Mob Value and the Cline Assets are free.  Any opinions on the realizable value of Cline?

 

 

[sculpin]

As at March 31/15:

 

81.5% Cline = $29,334,539

18.5% Mob = $6,658,761

Units: 36,729,002

 

NAV = $.98/unit

 

As of today:

 

NAV adjustment to $1.44/unit

Assume no change to Cline

 

Mob Value = $.64/unit

Cline Value = $.80/unit

 

So, we are trading at a slight discount to Mob Value and the Cline Assets are free.  Any opinions on the realizable value of Cline?

 

I spent part of the weekend going thru the Cline restructuring docs on this site. http://cfcanada.fticonsulting.com/cline/motions.htm

 

Could be zero or it could be a huge amount just for the repayment of the debt held by Marret alone. Resource size is massive "Cline owns 100% of the New Elk Coal Mine in Trinidad, Colorado.  The New Elk mine has a measured and indicated metallurgical coal resource of 618.9 million tons of in-place coal" http://www.clinemining.com/projects/coal/new-elk.html

 

It all depends on someone actually wanting to buy a coal asset at some point in the next 2-3 years. Are we at max pessimism for coal right now? Even the oil and natural gas industries are being taken out and shot these days. Solar is in the doghouse too. So.... will the current massive drop in cap ex, due to both low oil & NG prices in the last year, throughout the world lead to shortages of both commodities sometime in the next 36 months? If so, coal may make a come back at some point in this time frame.

 

At least at $0.61 per MHY unit we are not paying to make this bet. I would argue, too, that the Mobilicity could be worth more assuming that Marret has not yet fully accounted for the payment on the unsecured PIK debentures. I have no certainty on this however.

 

Why has Marret not written Cline down more significantly in the current environment??

[lessthaniv]

Yes, I've been making my way through the filings too. They've had to make some adjustments to account for the OSC not giving them an exemption to hold non-qualified investments (received upon implementation) in the investment funds. The ammended plan seems to account for this with no economic change to the outcome. At the same time they are trying to extend the stay period to Aug 17th to give them time to organize everything. Given all stakeholder are in agreement, I anticipate this all to be approved.

 

Based on the Feb 28 filing, note 11: Outstanding bond values = $110,173,897.  For purposes of the claim this sum is divided into two catagories; the secured noteholders allowable portion = $92,673,987 and the balance of $17,500,000 is the secured noteholders allowable unsecured claim.

 

The $92,673,987 gets settled with a $55M secured, first charge note of 7 years bearing essentially no interest +  the common equity of Cline.

The $17,500,000 gest settled with a prorated portion to a claim of $225,000 in eight years. Essentially negligible.

 

Therefore, the existing $110M in secured bonds becomes $55M ($.50 on the dollar) + (an equity kicker that will have modest initial value) + (a relatively meaningless sum from the unsecured claim.) Cline  has a current shareholder equity deficiency of $37M. The reduction in secured notes should wipe that deficiency clean and offer modest equity value.

 

So, post implementation of the plan, holders of the secured notes recieve about $.50 on the dollar plus some equity. Since Cline owns 100% of the secured notes they will own 100% of the equity going forward. About 70% of that is owned in the funds and the balance would be direct ownership. They will be steering the ship. The last update that Marret gave (end of Oct 2013) suggested the Cline bonds were then being carried just below par value. If we reduce that by half and place $0 value on the balance ... then the Cline assets still seem to carry value around $.40/unit MHY.un.

 

With a turn in the cycle, the equity could be worth much more.

 

Further to this, the fund is expected to distribute any excess capital back to unitholders. With the settlement of the MOB assets, we should get a distribution representing the better part of the existing stock value and be left with little to no capital involved on awaiting the outcomes with Cline.

 

Thoughts, Sculpin?

 

 

 

[yadayada]

I dont understand how they literally pissed away 100's of millions and did not have a drop of revenue in all those years, even when coal was high?

 

some kind of fraud going on there?

[Pelagic]

I spent part of the weekend going thru the Cline restructuring docs on this site. http://cfcanada.fticonsulting.com/cline/motions.htm

 

Could be zero or it could be a huge amount just for the repayment of the debt held by Marret alone. Resource size is massive "Cline owns 100% of the New Elk Coal Mine in Trinidad, Colorado.  The New Elk mine has a measured and indicated metallurgical coal resource of 618.9 million tons of in-place coal" http://www.clinemining.com/projects/coal/new-elk.html

 

It all depends on someone actually wanting to buy a coal asset at some point in the next 2-3 years. Are we at max pessimism for coal right now? Even the oil and natural gas industries are being taken out and shot these days. Solar is in the doghouse too. So.... will the current massive drop in cap ex, due to both low oil & NG prices in the last year, throughout the world lead to shortages of both commodities sometime in the next 36 months? If so, coal may make a come back at some point in this time frame.

 

At least at $0.61 per MHY unit we are not paying to make this bet. I would argue, too, that the Mobilicity could be worth more assuming that Marret has not yet fully accounted for the payment on the unsecured PIK debentures. I have no certainty on this however.

 

Why has Marret not written Cline down more significantly in the current environment??

 

If I'm not mistaken met coal is used in the steel industry, thermal coal is used for power generation. Not that steel is in high demand right now either though, just that in the long run met coal probably has a place regardless of what regulators say about coal fired power plants.

[james22]

As the FNMA thread is doing very well, I'd like to start a new thread about multibaggers, please throw your ideas out, mine are:

 

2) Gold miners

 

- I like silver (SLV) out of the money 2017 options; and

- Gold miners (Sprott Gold miner ETF, GDX, GDXJ - probably in this order)

 

VGPMX at 10-year low, 80% off high.

[Jurgis]

ARTH http://archtherapeutics.blogspot.com - This looks hyped, possibly pump and dump. I have no idea if the claims are true.

 

Might be interesting for someone who knows this field in depth.

 

Disclosure: no position, no plans for position. Posting just because I'd be interested to hear opinion of someone knowledgeable.

[cashisking]

About 70% of that is owned in the funds and the balance would be direct ownership.

 

Great summary. Where did you get the relative split of Cline bonds among funds and Marret direct ownership?

 

I look at cline as an out the money call option on met coal. I believe Marret said that there is enough cash in Cline to carry at least another year of expenses.

 

FWIW, these assets supported $600M market cap in early 2011

[sculpin]

Yes, I've been making my way through the filings too. They've had to make some adjustments to account for the OSC not giving them an exemption to hold non-qualified investments (received upon implementation) in the investment funds. The ammended plan seems to account for this with no economic change to the outcome. At the same time they are trying to extend the stay period to Aug 17th to give them time to organize everything. Given all stakeholder are in agreement, I anticipate this all to be approved.

 

Based on the Feb 28 filing, note 11: Outstanding bond values = $110,173,897.  For purposes of the claim this sum is divided into two catagories; the secured noteholders allowable portion = $92,673,987 and the balance of $17,500,000 is the secured noteholders allowable unsecured claim.

 

The $92,673,987 gets settled with a $55M secured, first charge note of 7 years bearing essentially no interest +  the common equity of Cline.

The $17,500,000 gest settled with a prorated portion to a claim of $225,000 in eight years. Essentially negligible.

 

Therefore, the existing $110M in secured bonds becomes $55M ($.50 on the dollar) + (an equity kicker that will have modest initial value) + (a relatively meaningless sum from the unsecured claim.) Cline  has a current shareholder equity deficiency of $37M. The reduction in secured notes should wipe that deficiency clean and offer modest equity value.

 

So, post implementation of the plan, holders of the secured notes recieve about $.50 on the dollar plus some equity. Since Cline owns 100% of the secured notes they will own 100% of the equity going forward. About 70% of that is owned in the funds and the balance would be direct ownership. They will be steering the ship. The last update that Marret gave (end of Oct 2013) suggested the Cline bonds were then being carried just below par value. If we reduce that by half and place $0 value on the balance ... then the Cline assets still seem to carry value around $.40/unit MHY.un.

 

With a turn in the cycle, the equity could be worth much more.

 

Further to this, the fund is expected to distribute any excess capital back to unitholders. With the settlement of the MOB assets, we should get a distribution representing the better part of the existing stock value and be left with little to no capital involved on awaiting the outcomes with Cline.

 

Thoughts, Sculpin?

I have tried calling Marret several times to get clarity on the NAV calc for the Mobilicity debentures and find out about return of the cash from this. Been unable to reach the extension provided to me by this Philip Oram and my last email has gone unanswered. They probably have all the cash from the secured debt positions and will probably have to wait some time for the settlement of the pro rata amounts from the unsecured Mobilicity debentures. Thus the return of capital dividend may be delayed until all of this is settled.

[lessthaniv]

About 70% of that is owned in the funds and the balance would be direct ownership.

 

Great summary. Where did you get the relative split of Cline bonds among funds and Marret direct ownership?

 

I look at cline as an out the money call option on met coal. I believe Marret said that there is enough cash in Cline to carry at least another year of expenses.

 

FWIW, these assets supported $600M market cap in early 2011

 

http://cfcanada.fticonsulting.com/cline/docs/Applicants'%20Factum.pdf

 

Item 6:

Specifically, certain of the Secured Noteholders are regulated investment funds that are

restricted from holding certain types of debt and equity instruments under applicable

securities laws. These restrictions affect the ability of these Secured Noteholders to hold

the new debt and equity allocated to them under the existing terms of the Plan. The

Secured Noteholders originally wished to receive the new debt and equity in the form set

out in the Plan to minimize their administration costs following Plan implementation.

The preferred alternative of Marret Asset Management Inc. (“Marret”), which exercises

management discretion and control over all of the Secured Noteholders, was to obtain an

exemption from the applicable regulatory restrictions from the Ontario Securities

Commission (the “OSC”) prior to Plan implementation. Marret sought that exemptive

relief from the OSC; however the OSC did not ultimately grant the requested relief.

 

 

Item 12:

 

The Plan, as approved pursuant to the Plan Sanction Order, provides that each Secured

Noteholder will receive its pro rata share of the New Cline Common Shares and New

Secured Debt. Approximately 70 percent of the Secured Noteholders are regulated

investment funds that are subject to regulatory restrictions with respect to the nature of

the debt and equity instruments that they can hold. The OSC has informed Marret that it

is not prepared to grant the exemptive relief requested by Marret with respect to such

regulatory restrictions. Without such exemptive relief, Marret’s regulated investment

funds are unable to hold the consideration to be received by Secured Noteholders

pursuant to the existing terms of the Plan.

[lessthaniv]

FWIW, these assets supported $600M market cap in early 2011

 

During that period of time, Asian companies were targeting domestic Met Coal companies. (Fording, Western Coal Corp, Grande Cache etc...) There was a quite a bit of talk at the time that Cline was next on the list and the premiums being paid were quite large. I believe part of the increase in Cline was based on comps but I'm not sure we'll see that type of market again any time soon. 

[ATLValue]

PGN - offshore oil driller that recently spun out of Noble. The company spun out above $10 last year and now is trading at around $1.10.

 

In my opinion several things are causing the stocks decline, 1) fall in oil price, 2) offshore rig sector has been weak based on speculation that the market will be oversupplied for the next 2-3 years as chinese rigs come onto the market, 3) selling as a result of the spin off, 4) recent debt for equity swap by similar competitor HERO and 5) fears about bankruptcy

 

Market cap: $95M (first quarter operating cash flow was $210M!!!)

 

Debt covenants are 4.0x EBITDA and 3.0x Minimum Interest Coverage Ratio and only apply to the revolver. As of March 31, 2015, the covenants under the Revolving Credit Facility were a net leverage ratio of 2.39 and an interest coverage ratio of 7.90

 

You might want to take a look at what PGN looks like in 2016 and 2017... they have some very high priced contracts rolling off and their rigs are more likely to be scrapped than re-contracted over the investment horizon before this company goes BK

 

I hear ya, it really does come down to what happens when these contracts expire and if the management team can find away to limit the haircuts to the rates. Speculative indeed!

 

I did some more work on PGN, Company is a dog, definitely not a multibagger, I'm guessing they start tripping their covenants in 2Q 2016

[yadayada]

FWIW, these assets supported $600M market cap in early 2011

 

During that period of time, Asian companies were targeting domestic Met Coal companies. (Fording, Western Coal Corp, Grande Cache etc...) There was a quite a bit of talk at the time that Cline was next on the list and the premiums being paid were quite large. I believe part of the increase in Cline was based on comps but I'm not sure we'll see that type of market again any time soon.

what are costs like of getting it out the ground? You could have a billion$ worth of coal, but if it costs a billion$ to get it out, not much worth. They don't go into much detail.

[lessthaniv]

I'm not really sure.

 

I do know the logistics aren't ideal in getting it to Asia at the moment and I believe that may be why it wasn't taken out when others were. Although, with Chinese steel companies moving more towards coastal areas the long term implications are positive for imports once the oversupply/overcapacity situation is resolved. That may be a while.

 

 

[Pelagic]

Something to think about with met coal is that a lot of thermal coal companies often have met coal assets as well. If they're going bankrupt due to their thermal coal portfolio, the met coal assets are going to be available for cheap.

 

It would seem met coal has followed iron ore and steel prices down over the past couple years having "fallen more than 70% from a high of $330 a metric ton just four years ago." So using 2011 numbers or comps is a bit optimistic. 

 

http://www.wsj.com/articles/met-coal-hits-lowest-price-in-a-decade-1434577741

[moustachio]

PGN - offshore oil driller that recently spun out of Noble. The company spun out above $10 last year and now is trading at around $1.10.

 

In my opinion several things are causing the stocks decline, 1) fall in oil price, 2) offshore rig sector has been weak based on speculation that the market will be oversupplied for the next 2-3 years as chinese rigs come onto the market, 3) selling as a result of the spin off, 4) recent debt for equity swap by similar competitor HERO and 5) fears about bankruptcy

 

Market cap: $95M (first quarter operating cash flow was $210M!!!)

 

Debt covenants are 4.0x EBITDA and 3.0x Minimum Interest Coverage Ratio and only apply to the revolver. As of March 31, 2015, the covenants under the Revolving Credit Facility were a net leverage ratio of 2.39 and an interest coverage ratio of 7.90

 

You might want to take a look at what PGN looks like in 2016 and 2017... they have some very high priced contracts rolling off and their rigs are more likely to be scrapped than re-contracted over the investment horizon before this company goes BK

 

I hear ya, it really does come down to what happens when these contracts expire and if the management team can find away to limit the haircuts to the rates. Speculative indeed!

 

I did some more work on PGN, Company is a dog, definitely not a multibagger, I'm guessing they start tripping their covenants in 2Q 2016

 

Isn't the revolving credit facility the only debt with coverage  and leverage requirements? Won't they be able to pay that off in full before 2016?

[cashisking]

"Multiple sources close to the talks say Mobilicity’s creditors backed Rogers’ bid even though Telus had offered $547 million"

 

WOW

 

http://business.financialpost.com/fp-tech-desk/how-rogers-blindsided-telus-by-acquiring-mobilicity

 

 

 

[sculpin]

http://www.theglobeandmail.com/report-on-business/mobilicity-creditors-fighting-over-funds-from-rogers-sale/article25522095/

 

14th report of the Monitor ----- July 14th: http://documentcentre.eycan.com/eycm_library/Project%20mike/English/Monitor's%20Reports%20(Sixth%20and%20Eighth%20Report%20are%20located%20in%20their%20own%20sub-folders)/Fifteenth%20Report%20of%20the%20Monitor_(July%2014,%202015).pdf

 

Mobilicity’s sale to Rogers Communications Inc. is complete, but the drama appears to continue among the small wireless carrier’s creditors as they argue over the distribution of funds from the deal.

 

Before the $465-million deal – which Mobilicity announced three weeks ago after securing buy-in from the federal government through the transfer of a swath of spectrum licences to Wind Mobile – the company had been under court-supervised creditor protection since September, 2013.

 

Along the bumpy road to a sale, there were several disputes involving creditors, particularly Catalyst Capital Group Inc. and the ad hoc committee of bondholders who together held most of the company’s debt.

 

Rogers agreed to pay $440-million in cash and assume $25-million in trade liabilities. The deal closed on July 2, but new court filings show the distribution of those funds has stalled.

 

As part of the transaction, Rogers negotiated a separate payment to Catalyst, which held first-lien bonds with a principal amount owing of $69.8-million. Rogers has now paid a total of $344.5-million – referred to as the “cash amount” – to Mobilicity’s court-appointed monitor, Ernst & Young Inc., indicating Catalyst received total proceeds of about $95.5-million.

 

Catalyst, the Toronto-based private equity firm run by Newton Glassman, agreed to release any claim against the remaining cash Rogers paid for the transaction.

 

Now, the remaining secured and unsecured creditors – many of which are Canadian and U.S. investment firms that typically run mutual funds – seem to be at odds about how exactly that amount will be distributed.

 

In previous court filings in the creditor protection proceeding, Catalyst said it was concerned that certain bondholders held multiple classes of debt and that it could put them in a conflict of interest.

 

In court filings on Tuesday, the monitor said it has not yet been able to resolve some disputes over how to pay Mobilicity’s secured and unsecured creditors.

 

Since Mobilicity’s assets have been sold, the distribution of the proceeds is being managed by Data & Audio-Visual Enterprises Holdings Inc. (known as “Holdings” in the court documents).

 

The terms of the sale agreement guarantee payment of the “total amounts owing” under the remaining first-lien notes (not owned by Catalyst) as well as the company’s second-lien debt and its debtor-in-possession (DIP) financing. As of June 30, that comes to a total of about $220-million.

 

The monitor is supporting an order to pay off the DIP notes immediately (the amount owing is just under $2-million), but payment of the rest of the secured debt remains unsettled. There are disputes over a “pre-payment premium” related to the first-lien debt as well as over the amount of interest properly owing on the second-lien notes.

 

Plus, Mobilicity’s unsecured debt totals more than $300-million, and the monitor said it has learned of new unsecured claims since the Rogers deal was announced.

 

“A combination of practical issues and a lack of consensus on the mechanics of the distribution resulted in a decision by [Holdings] not to seek a distribution of any of the cash amount at this time, other than to the holders of the DIP notes,” Ernst & Young said in the filings on Tuesday.

 

The monitor also said it recommends paying off a portion of the remaining first- and second-lien debt quickly, at least to help reduce ongoing interest charges, adding that it “intends to continue to facilitate discussions to this end.”

 

Representatives of Holdings were in court on Wednesday seeking approval of the distribution of funds to pay off the DIP financing as well as the transfer of signing authority solely to Bill Aziz, who is the chief restructuring officer and only remaining officer with a day-to-day administrative role.

 

A spokesman for Holdings declined to comment on the disputes between creditors on Wednesday.

[sculpin]

Update on Cline from Marret

 

Cline Mining Update

Cline has successfully emerged from the CCAA process and the Company has received new secured debentures and common equity of Cline as part of the restructuring. The Manager is actively seeking to liquidate Cline’s shares in Cline Lake Gold which the Manager believes will close in the third quarter and net somewhere between $1.0-1.25 million CAD in proceeds. The Manager is also seeking a buyer for excess land in Colorado that Cline holds, which has been valued in the USD $0.5-0.8 million range. Timing for this is uncertain and based on rural real estate markets.

The coal industry remains very distressed as prices are at or near record lows with unfavourable supply, demand, and currency dynamics. Production is being shut-in and companies are entering restructuring modes, but we are likely early in the overall process. The Manager continues to opportunistically sell assets at Cline and wait for improved market conditions.

 

[Guest MarkS]

I started a highly speculative small position in Gulf Coast Ultra Deep Royalty Trust (GULTU). Units can be bought for about 50 cents each. The trust  was created when Freeport-McMoRan Copper & Gold Inc.and McMoRan Exploration Co. merged. Holders of the royalty trust units are entitled to share in a 5% gross overriding royalty interest in future production from 20 specified ultra-deep exploration prospects in the emerging shallow water, ultra-deep gas trend just offshore and onshore in Louisiana. Freeport ownes over 40% of the trust.  If the price of the trust drops below .25 cents for a nine month period, Freeport has the right to purchase the units for 25 cents each.  Freeport also has the right in 2018  to purchase the units for $10.  A lot of heavy hitters including Leon Cooperman, Paulson (though he is selling down  his position), and Mount Kellett have positions.

The trust has for practical purposes no current income and may not have any for the forseeable future.  I bought the shares on the promise of the trust's interest in the Higlander field. Freeport O&G is operator of the Highlander well and holds a 72.0 percent working interest and an approximate 49 percent net revenue interest. Other working interest owners include Energy XXI LTD (EXXI) (18.0%) and W. A. “Tex” Moncrief Jr. (10.0%). The Trust  holds a 3.6 (5% of Freeport's interest) percent overriding royalty interest in the Highlander area. I pulled this except from one of EXXI'S recent fillings:

 

"Our partnership with the operator Freeport McMoRan Oil & Gas, LLC (formerly McMoRan Exploration Company and now acquired by Freeport-McMoRan, Inc.) retains a leading acreage position in the emerging Inboard Lower Tertiary and Cretaceous gas trend, located in the GoM Shelf and onshore South Louisiana. We have participated in eight projects to date, both offshore and onshore, with our participations ranging from approximately 9% to 23%. This emerging exploration trend focuses on the subsalt Lower Wilcox and Cretaceous sections. The operator announced on December 24, 2014, that the Highlander well completed a successful production test. The production test, which was performed in the Cretaceous/Tuscaloosa section, indicated a flow rate of approximately 43.5 million cubic feet of natural gas per day (“MMCf/d”), on a 22/64 th choke with flowing tubing pressure of 11,880 pounds per square inch. The operator and its partners commenced production in late February 2015. On February 20, 2015, the operator announced the results of additional testing on the Highlander discovery. The production test performed in the Cretaceous/Tuscaloosa section, utilized expanded testing equipment and indicated a flow rate of 75 MMCf/d. The operator announced on March 16, 2015, that following production testing, independent reserve engineers provided estimates of gross proved reserves totaling approximately 38 billion cubic feet (“Bcf”) of natural gas associated with the initial well. Independent reserve engineers estimates of proved, probable and possible reserves for the initial well totaled approximately 197 Bcf gross of natural gas. In addition, based on work performed to date, independent reserve engineers estimate additional gross resources for the Highlander field exceeding 2 trillion cubic feet gross. A second well location has been identified and future plans will be determined pending review of performance of the first well. The operator has identified multiple prospects in the Highlander area which provide opportunities for future development of the field and controls rights to more than 50,000 gross acres. The Highlander discovery well was drilled to a total depth of approximately 29,400 feet in the third quarter of our fiscal year 2014. Wireline log and core data obtained from the Wilcox and Cretaceous sand packages indicated favorable reservoir characteristics with approximately 150 feet of net pay."

 

I don't know if the units will ever be a profitable position for me- but 2 trillion cubic feet is a butt load of gas.

I tend to start with small positions and add more as I become more comfortable. I would love to hear from anyone familiar with the name.  I'm always willing to change my mind and exit a position.

[DeepSouth]

I started a highly speculative small position in Gulf Coast Ultra Deep Royalty Trust (GULTU). Units can be bought for about 50 cents each. The trust  was created when Freeport-McMoRan Copper & Gold Inc.and McMoRan Exploration Co. merged. Holders of the royalty trust units are entitled to share in a 5% gross overriding royalty interest in future production from 20 specified ultra-deep exploration prospects in the emerging shallow water, ultra-deep gas trend just offshore and onshore in Louisiana. Freeport ownes over 40% of the trust.  If the price of the trust drops below .25 cents for a nine month period, Freeport has the right to purchase the units for 25 cents each.  Freeport also has the right in 2018  to purchase the units for $10.  A lot of heavy hitters including Leon Cooperman, Paulson (though he is selling down  his position), and Mount Kellett have positions.

The trust has for practical purposes no current income and may not have any for the forseeable future.  I bought the shares on the promise of the trust's interest in the Higlander field. Freeport O&G is operator of the Highlander well and holds a 72.0 percent working interest and an approximate 49 percent net revenue interest. Other working interest owners include Energy XXI LTD (EXXI) (18.0%) and W. A. “Tex” Moncrief Jr. (10.0%). The Trust  holds a 3.6 (5% of Freeport's interest) percent overriding royalty interest in the Highlander area. I pulled this except from one of EXXI'S recent fillings:

 

"Our partnership with the operator Freeport McMoRan Oil & Gas, LLC (formerly McMoRan Exploration Company and now acquired by Freeport-McMoRan, Inc.) retains a leading acreage position in the emerging Inboard Lower Tertiary and Cretaceous gas trend, located in the GoM Shelf and onshore South Louisiana. We have participated in eight projects to date, both offshore and onshore, with our participations ranging from approximately 9% to 23%. This emerging exploration trend focuses on the subsalt Lower Wilcox and Cretaceous sections. The operator announced on December 24, 2014, that the Highlander well completed a successful production test. The production test, which was performed in the Cretaceous/Tuscaloosa section, indicated a flow rate of approximately 43.5 million cubic feet of natural gas per day (“MMCf/d”), on a 22/64 th choke with flowing tubing pressure of 11,880 pounds per square inch. The operator and its partners commenced production in late February 2015. On February 20, 2015, the operator announced the results of additional testing on the Highlander discovery. The production test performed in the Cretaceous/Tuscaloosa section, utilized expanded testing equipment and indicated a flow rate of 75 MMCf/d. The operator announced on March 16, 2015, that following production testing, independent reserve engineers provided estimates of gross proved reserves totaling approximately 38 billion cubic feet (“Bcf”) of natural gas associated with the initial well. Independent reserve engineers estimates of proved, probable and possible reserves for the initial well totaled approximately 197 Bcf gross of natural gas. In addition, based on work performed to date, independent reserve engineers estimate additional gross resources for the Highlander field exceeding 2 trillion cubic feet gross. A second well location has been identified and future plans will be determined pending review of performance of the first well. The operator has identified multiple prospects in the Highlander area which provide opportunities for future development of the field and controls rights to more than 50,000 gross acres. The Highlander discovery well was drilled to a total depth of approximately 29,400 feet in the third quarter of our fiscal year 2014. Wireline log and core data obtained from the Wilcox and Cretaceous sand packages indicated favorable reservoir characteristics with approximately 150 feet of net pay."

 

I don't know if the units will ever be a profitable position for me- but 2 trillion cubic feet is a butt load of gas.

I tend to start with small positions and add more as I become more comfortable. I would love to hear from anyone familiar with the name.  I'm always willing to change my mind and exit a position.

 

The main issue with this is FCX's precarious financial situation and that the leases can expire if not drilled/the GULTU units will expire in 18 years. FCX is burning several billion per year due to low Cu/crude prices while it builds out Grasberg and ramps up its Gulf O&G properties.

 

GULTU's 2014 10-K explains that FCX will let 13 of its interests leaseholds expire from lack of drilling in 2015 (all interests except Lafitte, Highlander, Lineham Creek, some of Tortuga). To add, "Near-term activities on all subject interests except for the onshore Highlander subject interest have been deferred." At this point the GULTU value effectively rests on Highlander and Lineham Creek interests.

 

For the Highlander well, there's 38BCF of proved, 197BCF of PPP, and 2TCF of add'l estimated resources on the play. If we take these numbers at face value, make no discount for time value (or for the fact that the units expire in 2033) at $3/mcf at the 3.6% interest, the proved is worth ~5% of GULTU's 110MM market cap, the ppp is worth ~10% of market cap (on a 90/50/10 basis) and the entire highlander resources is equivalent to 250% of market cap (on a 100% basis - not discounted for higher risk probable/possible reserves).

 

In effect, you need ~10 strongly performing wells to get your money back at today's GULTU price, without factoring in time value of money or the expiration of the trust. With these ultra-deep wells costing $250MM each to drill and develop (and are geologically extreme and require novel methods), the ROI meager at $3/mcf, and FCX very capital constrained, I don't think this will hit the mark.

 

This would be more interesting at $.10-.20 per unit, if Nat Gas makes a strong move higher, or if FCX's capital constraints dissipate from a large rise in Cu/crude prices.

 

That said, I'm not an O&G analyst, so I'm by no means an expert (and this is definitely an industry that can be difficult for generalists).