Andy Dufresne Posted October 1, 2014 Posted October 1, 2014 I misjudged the severity of the free-fall and bought a decent position in PWT last week, thinking it wouldn't go much below CAD 7.5 which seemed to be a good resistance level for a while... oh well at least I can sit back and collect the dividend ... oil will not stay in the dog-house / bear's cave forever ... and not to "intrude" on the patch (much) but look at Contango with TTM 190 m CFO, 2014E EBITDA of 240 m, risible LT debt of 65 m, EV of ~680 m, its trading at EV/EBITDA of 2.8 - it's down roughly 20% in the past month ....
alertmeipp Posted October 2, 2014 Posted October 2, 2014 Who is buying this selloff? Feels like 2008, every day five to ten percent off. :'(
Uccmal Posted October 2, 2014 Posted October 2, 2014 Who is buying this selloff? Feels like 2008, every day five to ten percent off. :'( Sometimes investing is as much fun as sticking a fork in my eye. I really would like to buy more PWT but I have enough at risk here. Good dividend, anyway.
alertmeipp Posted October 2, 2014 Posted October 2, 2014 I am sure many of the opec countries, us shale gas ans oil sand will go into serious troubles before PWT. I have more than i want. But sometimes, one has to go the Eric way to come out ahead.
dutchman Posted October 2, 2014 Posted October 2, 2014 How safe is the PWT dividend ? Seems pretty ironclad to me, but I question everything at times like this!
alertmeipp Posted October 2, 2014 Posted October 2, 2014 Yes. I agree the market is pricing in 70s oil for some. If the market is wrong, we will be more than fine.
alertmeipp Posted October 2, 2014 Posted October 2, 2014 Oil sand is bye bye even at current pricing. No new development there. Us shale is at about $75 marginal cost for new productions.
doc75 Posted October 2, 2014 Posted October 2, 2014 There is I think something serious going on in the oil world. I think the market is pricing in a collapse in oil prices. Going from $100 - $90 is not much of a big deal but if we go to $70 the TSX energy index is screwed. The market has to be pricing in a severe decline in oil or else this selloff makes no sense. Well there is no shortage of articles right now predicting oil in the $75-85 range next year, talking about the huge supply glut, China slowing down, etc. So yes I'd say the market is (at least beginning to) price in a large change in price structure. It's interesting how these ideas float around for a little while and then suddenly hit critical mass and become the new gospel. On PWT: Last Q looked pretty good, but oil was soaring. Won't their numbers be a whole lot uglier if oil goes to $85 and stays there for awhile? I think it would basically half their netbacks.
alertmeipp Posted October 2, 2014 Posted October 2, 2014 PWT's 5 year plan uses $90 oil. And i think 1.03 exchange rate. So 85 wti will still look good for them at current exchange rate. But asset sale will be difficult. For 2014, budget for 92.5 So things are ok. But if one thinks wti is heading to 70, no reason to be in this sector.
doc75 Posted October 2, 2014 Posted October 2, 2014 PWT's 5 year plan uses $90 oil. And i think 1.03 exchange rate. So 85 wti will still look good for them at current exchange rate. But asset sale will be difficult. For 2014, budget for 92.5 So things are ok. But if one thinks wti is heading to 70, no reason to be in this sector. I can easily see WTI plummeting to $70 on overreaction but hard to see it staying there for too long. I admit I don't know much... it just strikes me that the marginal cost of production is pretty high these days. I think you may have to be careful with the exchange rate for PWT. Yes it helps with sales but this is from the Q2 report: "Net income for the second quarter of 2014 was $143 million ($0.29 – per share basic) compared to a net loss of $89 million ($0.18 per share – basic) in the first quarter of 2014 as restated. The increase is primarily attributed to the strengthening of the Canadian dollar compared to the US dollar which led to unrealized foreign exchange gains on our senior unsecured notes denominated in US dollars." So these are non-cash differences to net income... but presumably they'd also be paying higher effective interest on those notes as the CAD falls.
alertmeipp Posted October 2, 2014 Posted October 2, 2014 Thanks. Noted. My thinking is straight forward, they can get to 2billions fund flow, give it a 7x. We get a 20 dollars still in 4 years while getting the dividend along the way. So far, they are ahead in their plan except asset.sale.
gordoffh Posted October 2, 2014 Posted October 2, 2014 How safe is the PWT dividend ? Seems pretty ironclad to me, but I question everything at times like this! article below lays out dividend safety for 4 stocks PWT being one - one of the reasons I felt somewhat ok buying LTS on the way down and hopefully picked up last shares this morning http://www.fool.ca/2014/09/16/how-will-plunging-crude-prices-affect-monster-dividend-yields-in-the-patch/
yadayada Posted October 2, 2014 Posted October 2, 2014 PWT's 5 year plan uses $90 oil. And i think 1.03 exchange rate. So 85 wti will still look good for them at current exchange rate. But asset sale will be difficult. For 2014, budget for 92.5 So things are ok. But if one thinks wti is heading to 70, no reason to be in this sector. I can easily see WTI plummeting to $70 on overreaction but hard to see it staying there for too long. I admit I don't know much... it just strikes me that the marginal cost of production is pretty high these days. I think you may have to be careful with the exchange rate for PWT. Yes it helps with sales but this is from the Q2 report: "Net income for the second quarter of 2014 was $143 million ($0.29 – per share basic) compared to a net loss of $89 million ($0.18 per share – basic) in the first quarter of 2014 as restated. The increase is primarily attributed to the strengthening of the Canadian dollar compared to the US dollar which led to unrealized foreign exchange gains on our senior unsecured notes denominated in US dollars." So these are non-cash differences to net income... but presumably they'd also be paying higher effective interest on those notes as the CAD falls. The disturbing portion of the IEA report noted that capital expenditures in the energy sector have seen an astronomical increase. “These ever higher levels of capital expenditure have yielded ever smaller increases in the global oil supply” according to Mark Lewis, former head of energy research at Deutsche Bank. Capital expenditures for oil and gas development increased from $250 billion in 2000 to $700 billion in 2012 (in constant dollars) according to the IEA report, while the global oil supply (adjusted for energy content) increased by only 14 percent. The report noted annual investments have effectively doubled from $350 billion in 2005 to roughly $700 billion in 2012. Reviewing the exponential increase, Lewis concluded “the most straightforward interpretation of this data is that the economics of oil have become completely dislocated from historic norms since 2000, and especially since 2005, with the industry investing at exponentially higher rates for increasingly small incremental yields of energy”. Unless we are all driving battery cars in 5 years, oil seems highly unlikely to be below 80$.
Uccmal Posted October 2, 2014 Posted October 2, 2014 Oil is on a pretty tight cycle. The realized price goes down and the more expensive drilling slows. So, as mentioned above things like the oil sands, and offshore deep wells slow down. Once this happens the price starts to go back up. Natural gas is steady. The operators in Western Canada can switch nearly at will. I dont think Pennwest's dividend is at risk. They had more than 4 times coverage out of funds flow. Management had the opportunity to slash it during the recent accounting thingee and didn't.
plato1976 Posted October 5, 2014 Posted October 5, 2014 PWE,LTS, etc. etc. For all these mentioned here, which one is the lowest cost producer? This sector was killed the last month... Oil is on a pretty tight cycle. The realized price goes down and the more expensive drilling slows. So, as mentioned above things like the oil sands, and offshore deep wells slow down. Once this happens the price starts to go back up. Natural gas is steady. The operators in Western Canada can switch nearly at will. I dont think Pennwest's dividend is at risk. They had more than 4 times coverage out of funds flow. Management had the opportunity to slash it during the recent accounting thingee and didn't.
Myth465 Posted October 5, 2014 Posted October 5, 2014 I would probably buy Legacy Oil and Gas. Was a top pick on Market call. At less than 3 x cash flow. Plus no other issues now that it is delevered. It will recover quicker than LTS, PWE, and Manitok which all have a few fleas. At this point everything is cheap in the sector...,
biaggio Posted October 5, 2014 Posted October 5, 2014 I don't know about LEG as compared to others LEG is smaller, less debt, probably more growth(i.e. easier to grow), low cost, does not have past management baggage but I think its reflected in the price difference versus the others. No dividend. Everything has been clobbered. Could be because I hold LTS, PWT that I like them vs LEG-- they seem to have a sustainable dividend + seem very cheap: LTS PWT LEG net back 50 39 57 2P 178 625 117.2 estBBL/d 40,000 103,000 23,000 Debt 1.5B 2.4B 0.815B #shares 200m 495m 199.7 EV $2.42B $5.75B $1.93B EV/2p $13.6 $9 $16.5 EV/1000bbl/d $60 $56 $84 Capex 500,000 820m 390 CF/S (2013) $3.43 $2.17 $1.51 Div $0.48 $0.56 0 Div yield 10 8.3 0 Share Price $4.60 $6.77 $5.59 Price/CF 1.34x 3x 3.7x Above retrieved from their most recent investor presentation. They could be wrong. The question is why might the market be right i.e. why are we wrong? I am willing to suffer in the short run. Does anyone else other Canadian oil & gas companies to compare to those above? "Be wary of the high cost associated with a low price" to quote one of the other posters on another thread + my new mantra. Numbers seem to good to be true, 1.3x for LTS??? vs a property they sold recently for 6.5x.
biaggio Posted October 5, 2014 Posted October 5, 2014 Potential catalyst= merger + acquisition by other oil + gas companies. Does it not appear that it is cheaper to buy these companies vs drilling for new oil. I am bracing for more price weakness until then.
gordoffh Posted October 5, 2014 Posted October 5, 2014 [shadow=red,left]Numbers seem to good to be true, 1.3x for LTS??? vs a property they sold recently for 6.5x[/shadow]. Since LTS is now again my largest position and i have been adding at these levels I have looked at a lot of presentations again to convince myself I am ok. they have reduced balance sheet risk and although still high they followed through on a plan outlined and debt is a couple of years out anyway. they have some of the highest netbacks in the industry and can ride out to some extent a continued fall in oil price- they have hedged to some extent production - cardium and bakken land producing good wells and is there any reason to think otherwise - there have been a couple of articles recently on sustainability of dividend (some posted on this thread) and it seems adequately covered and this is one big key for me in taking oversized position - friday bruce campbell was on BNN and postulated there could be a surprise in oil earnings due to the fact price received by CDN companies has not fallen that much - so where does oil go to ? the big question but to me anyway this is overdone - how much oil continued to be fracked in states at 70 dollar oil
Zorrofan Posted October 5, 2014 Posted October 5, 2014 [shadow=red,left]Numbers seem to good to be true, 1.3x for LTS??? vs a property they sold recently for 6.5x[/shadow]. Since LTS is now again my largest position and i have been adding at these levels I have looked at a lot of presentations again to convince myself I am ok. they have reduced balance sheet risk and although still high they followed through on a plan outlined and debt is a couple of years out anyway. they have some of the highest netbacks in the industry and can ride out to some extent a continued fall in oil price- they have hedged to some extent production - cardium and bakken land producing good wells and is there any reason to think otherwise - there have been a couple of articles recently on sustainability of dividend (some posted on this thread) and it seems adequately covered and this is one big key for me in taking oversized position - friday bruce campbell was on BNN and postulated there could be a surprise in oil earnings due to the fact price received by CDN companies has not fallen that much - so where does oil go to ? the big question but to me anyway this is overdone - how much oil continued to be fracked in states at 70 dollar oil You have to remember that in the short-term the market is a voting machine, in the long term it is a weighing machine (did i get that right?) so eventually the value will be recognized. I think that at this stage the strength in the dollar drives down oil prices and makes investors reluctant to invest. Rumor has it that the US and Saudi's are driving prices down in order to inflict pain on Putin, punishment for his actions in Ukraine. cheers Zorro
alertmeipp Posted October 5, 2014 Posted October 5, 2014 Russia will just pump more, and they will bypass usd settlement. Saudi and Russia are low cost producers. US is not neither the north sea. Not sure why the market makes a big deal about Saudi one buck price cut. Wti and brent dropped like 10 15 bucks. Saudi will have to drop to be competitive. Iran already asks for cut.
alertmeipp Posted October 5, 2014 Posted October 5, 2014 [shadow=red,left]Numbers seem to good to be true, 1.3x for LTS??? vs a property they sold recently for 6.5x[/shadow]. Since LTS is now again my largest position and i have been adding at these levels I have looked at a lot of presentations again to convince myself I am ok. they have reduced balance sheet risk and although still high they followed through on a plan outlined and debt is a couple of years out anyway. they have some of the highest netbacks in the industry and can ride out to some extent a continued fall in oil price- they have hedged to some extent production - cardium and bakken land producing good wells and is there any reason to think otherwise - there have been a couple of articles recently on sustainability of dividend (some posted on this thread) and it seems adequately covered and this is one big key for me in taking oversized position - friday bruce campbell was on BNN and postulated there could be a surprise in oil earnings due to the fact price received by CDN companies has not fallen that much - so where does oil go to ? the big question but to me anyway this is overdone - how much oil continued to be fracked in states at 70 dollar oil Just sell bakken and cardium to cpg for 4 billion. Cpg will probably jump on that. John will have swan hills and other development assets to play with. We can also dream
Cardboard Posted October 5, 2014 Author Posted October 5, 2014 Don't forget that the CDN $ has dropped like a rock vs the USD recently and is now at 88.8 cents. This makes these names big bargains for U.S. producers who also get better valuations than their Canadian counterparts especially on an EV basis since analysts and investors don't punish them as much for a high debt to cash flow ratio. Something will happen here. It just makes no sense. Cardboard
sys Posted October 5, 2014 Posted October 5, 2014 is it just oil pricing? or fear of rising interest rates and/or tighter credit markets coming along?
Uccmal Posted October 5, 2014 Posted October 5, 2014 I dont see the oil price dropping that low for any sustained period. The geopolitics have changed since the Arab spring. Russia, and the major mideast providers have to keep the price high to finance the bribes needed to keep their populations quiet. The Russian economy is in tatters and there are signs of internal strife amongst the Putinites, with the arrest of the second in commands buddy. Deep sea drilling runs at around 50/bbl to pump out. To me that pits a significant floor on the price to keep those operations profitable. They will be the first to be shut in.
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