Canadian oil patch for sale!

[alertmeipp]

 

 

The FD cost jumped to $50 (not $70) because of so called some "one time" expense and some -ve revisions, it was explained. Historically, FD is about $30 per barrel. 2014 is projected to be $25 to 30. With $50 netback, it's good return. They have good assets (you can tell from the prices they got and the time those assets are getting sold)

 

Not the best management, no argument. But I see some potential short term catalysts.

 

 

More info:

http://www.lightstreamresources.com/news/news-releases.cfm?newsReleaseAction=view&releaseId=146

 

During 2013, our capital program resulted in the addition of 20.7 MMboe 2P reserves and 11.5 MMboe of TP reserves. With a total of 16.9 MMboe of reserves produced during the year, this resulted in our 2013 capital program replacing 122% of 2013 production.

 

For the year ended December 31, 2013, we realized net technical revisions that resulted in 2P reserves being reduced by 7.9 MMboe. The technical revisions to our reserves bookings were primarily comprised of the removal, or reduction, in reserve bookings for areas within southeast Saskatchewan and, to a lesser extent, the Cardium where off-setting production did not economically support the reserve bookings on a go-forward basis.

 

Inclusive of the net negative technical revisions, our 2013 2P F&D was $57.63/boe (including land) and $56.49/boe (excluding land). We view this as unacceptably high and anomalous due primarily to capital expenditures that did not impact reserves and net negative technical reserve revisions. These revisions accounted for an increase in our 2P F&D of approximately $21.83/boe. Some items of our capital spending during 2013 that were considered to be unique included:

 

Facility cost overruns of $25mm for projects initiated in late 2012;

$30mm for pipeline and facility infrastructure to tie-in existing Bakken wells that have been drilled over the past 3 years, resulting in an operating cost savings of over $10/boe for these projects on a go-forward basis. Based on our pace of development in the Bakken we have minimal plans to complete additional infrastructure projects of this magnitude in the future;

Initial costs during the evaluation phase of the Swan Hills area program amounted to approximately $15mm of additional capital compared to our current program design; and

Drilling capital of $35mm to test new play concepts that did not result in any immediate reserve assignments.

Our 2013 2P F&D before revisions was $35.80/boe. Taking into account all of our expenditures and reserve revisions, our three-year weighted average F&D cost, including land, is $33.07/boe, generating an operating recycle ratio of 1.5 times, based on a $50.80/boe netback. We are targeting 2014 F&D costs to be within our historical range of $25.00/boe to $30.00/boe, as we do not expect the above mentioned 2013 costs to be recurring.

 

2P reserves in the Cardium business unit increased from 93.7 MMboe in 2012 to 95.4 MMboe in 2013, replacing 124% of production. Large positive revisions were also made due to performance and increased gas to oil ratios in the area. In 2013, 2P FD&A costs for this business unit were $24.95/boe (including revisions), generating an operating recycle ratio of 1.9 times based on our operating netback for the business unit of $47.54/boe. We expect the Cardium business unit to continue to be a key source of growth, with a development drilling inventory of over 530 net locations, of which 202 net locations were included in the Sproule Evaluation.

 

2P reserves in the Bakken business unit (before dispositions) were down slightly in 2013, resulting in year-end 2P reserves of 72.8 MMboe. The potential for future EOR-related reserve growth in the Bakken is encouraging after receiving initial 2P reserve recognition for the early stage success of our pilot natural gas flood. We now have 415 Mboe of reserves added that can be attributed to our EOR program. At year-end, we had an inventory of over 900 net locations in the business unit, of which 275 net locations were included in the Sproule Evaluation.

[gordoffh]

Next if you do a quick and dirty NAV it comes out to approx. $3.8/shr.  My conservative quant model gives a sub $2/share NAV (down from $6, and it takes into account other assets and liabilities).  So basically the company destroyed 60-70% of value with a terrible return on a huge capex.  It's gone, the company is nearly worthless for equity holders.  This was also in a time of high oil prices. 

really? recommended in jan and 9 months later stock is worthless 

[alertmeipp]

Next if you do a quick and dirty NAV it comes out to approx. $3.8/shr.  My conservative quant model gives a sub $2/share NAV (down from $6, and it takes into account other assets and liabilities).  So basically the company destroyed 60-70% of value with a terrible return on a huge capex.  It's gone, the company is nearly worthless for equity holders.  This was also in a time of high oil prices. 

really? recommended in jan and 9 months later stock is worthless

 

Not even 9 months, he changed mind after the March report. So it's more than 2 months. He missed the run up to 9 bucks, but he also missed this massive selling.  :'(

 

I was hoping asset sales with such good metrics would provide a floor to LTS's share price. How wrong I am.

 

 

 

 

[ItsAValueTrap]

2P reserves in the Bakken business unit (before dispositions) were down slightly in 2013, resulting in year-end 2P reserves of 72.8 MMboe. The potential for future EOR-related reserve growth in the Bakken is encouraging after receiving initial 2P reserve recognition for the early stage success of our pilot natural gas flood. We now have 415 Mboe of reserves added that can be attributed to our EOR program. At year-end, we had an inventory of over 900 net locations in the business unit, of which 275 net locations were included in the Sproule Evaluation.

 

Why are they talking about EOR so soon?  Is this EOR for wells drilled within the past decade?

 

Here's the thing:

-EOR is for wells near the end of their life.

-If they're talking about it now, it suggests that their wells are nearing the end of their life.

-Usually you don't get a lot of money out of EOR projects because it's used on wells that are near the end of their life.

 

I have a feeling that Lightstream has mainly new wells drilled within the past decade.  If the life of those wells is only 1-2 decades without EOR (and that could very well be the case), then the short life may not be good for the economics of those wells.

 

But mainly, you should be very skeptical about their reserves and well economics.

[kevin4u2]

I changed my mind in 3 months based on data that was critically analyzed, and not accepted at face value from management. 

 

The person who copied and pasted from the company press releases you need to throw it in the trash, and do your own analysis. Proved F&D was over $70, just do the math. I will add that the reserves got a boost of 5% due to commodity prices used.  They aren't getting a boost this year. Given the very short reserve life, it will be a significant hit.

 

Probable reserves are worthless if the company cannot capitalize on the proven reserves. Proven reserves have the lowest risk, and must have a high probability threshold.

 

As for missing the run up, you are correct, I missed the speculation up to $9 bucks and because it was not grounded in reality, it came back down to earth. I regularly miss out on speculative runs and it doesn't bother me for 5 minutes. I can't predict such things, I don't gamble I value invest, and I don't like to rely on the kindness of strangers.

 

Why is this a fantastic buy when the equity value simply is not supported. Next, the long term F&D is not 25 or whatever was said. The company has lost half a billion dollars over its existence. A company with a long term recycle ratio of 2 or better makes money.

 

I am also not saying that the assets do not have value. I'm arguing that the assets accrue little to no value to the equity holder. Net out liabilities and there is nothing left.

 

Next if you do a quick and dirty NAV it comes out to approx. $3.8/shr.  My conservative quant model gives a sub $2/share NAV (down from $6, and it takes into account other assets and liabilities).  So basically the company destroyed 60-70% of value with a terrible return on a huge capex.  It's gone, the company is nearly worthless for equity holders.  This was also in a time of high oil prices. 

really? recommended in jan and 9 months later stock is worthless

 

Not even 9 months, he changed mind after the March report. So it's more than 2 months. He missed the run up to 9 bucks, but he also missed this massive selling.  :'(

 

I was hoping asset sales with such good metrics would provide a floor to LTS's share price. How wrong I am.

[alertmeipp]

We all have to decide whether the fd cost of $60 is one off event or here to stay. No point to argue here

[biaggio]

kevin4u2, thanks for the info.

 

I am looking at this area because of the recent depressed pricing. I get the feeling that  I should probably be avoiding this.

 

So basically we should look at 2 basic things when looking at reserve reports:

 

- Proven reserves

 

- Capex spent vs how much 1P reserves are added--to see that they are spending money intelligently.

 

One should pretty much ignore, or take it with a grain of salt everything else which requires various predictions/estimates.

 

Looking at LTS, they have ~ 79 m barrels of proven producing oil with a F+D cost ~ $31 per barrel= $2.4b --> would others like CPG be willing to pay this instead of doing their own F&D (CPG historic F&D cost ~$24 ...but that was the past)

vs LTS current EV=$2.3 b.

All the other land , probable barrels are free options. At $4 per share, LTS is a better bargain then at $9 if oil prices cooperate.

 

I can t see it going to zero. (It could be my blindness). If oil prices continue to be depressed or decrease more, they could cut the dividend to zero, cut their capital spending, and cut their operating costs...yes the share price would suffer.

 

Who knows what oil prices will do. They might be up to $100 again. Its possible that prices will stay around $80...I would expect LTS and other companies to adjust to this if they want to survive. Just speculating.

 

Again I appreciate all the healthy skeptism.

 

kevin 4u2, ItsAValueTrap, is there a price or valuation where these types of properties would be considered for your portfolio.

[ItsAValueTrap]

Even proven reserves can be manipulated.

 

On some level the reserve estimator has to plug something in for G&A.  If you wanted to manipulate the # of barrels, then you could apply too little corporate overhead/corporate G&A to the wells.  This lowers the G&A costs to operate the well.  With lower costs, the wells have a longer life and more reserves.  NPV goes up.

 

And even the proven reserves involve subjective assumptions, so there is leeway in determining proven reserves.

 

2- Personally I look for:

A- Skill in being the low-cost operator.  There are a very limited number of these people.

B- Management with integrity.

C- Valuation.

 

Without B the E&Ps get black box-ey.  It's not worth it.  So CLR (Continental) for example satisfies A but not B; depreciating software over 20+ years is too egregious for me.

 

If there was industry-wide undervaluation, more of these guys would be buying back shares rather than issuing them.

[alertmeipp]

this is the key - "Who knows what oil prices will do. "

 

Leverage hits both ends, and one of its growth asset in in doubt pending update.

 

They sold about 15% of their assets for 729m last year, and now the market says the remaining assets worth less than 2.3b or less.

 

 

 

 

 

 

 

 

 

 

 

 

[gordoffh]

perhaps Saudis will stop the fall in oil prices

 

http://www.bloomberg.com/news/2014-10-23/oil-climbs-as-saudi-arabia-said-to-cut-supply-to-market.html

 

an early Christmas present would be for the Saudis to be aggressive in supply cuts and an announcement by\

Lightstream that all issues are resolved at Swan Hills at they are good to go

[alertmeipp]

time to load up?

[yadayada]

FWIW only venezuela and maybe Iran will get into trouble at prices below 80$. Russia can stand it, and SA have huge reserves. I think they will let it run at a low price and then cut some production perhaps. I think with all the shale fields youw ill see more volatile oil from now on.

[gordoffh]

at the low today for LTS market cap is less than the assets sold earlier this year  under 700 m      the wheels on the truck i backed up

are sinking deeper in the now apparent world glut forever of oily quicksand  incredible

[alertmeipp]

Yes.

I too am finding the drop incredible especially compare to the asset sale metrics. But the drop in wti and brent is serious even if you factor in the cdn exchange rate.

 

Anyone adding to oil exposure? Canadian seems out of favor again.

 

Sd looks interesting given their hedge and growth.

 

 

[tengen]

I'm probably going to kick myself but I bought some PMT. Run by a good operator in Clayton Riddell.

 

Clayton's daughter, Susan Riddell Rose, runs Perpetual Energy (PMT). His son John runs Paramount Resources (POU). Both are, by all accounts, chips off the old block.

[Hawks]

bought some a few weeks ago during the debacle:  cnq, xom, bp

[Guest 50centdollars]

I'm probably going to kick myself but I bought some PMT. Run by a good operator in Clayton Riddell.

 

Clayton's daughter, Susan Riddell Rose, runs Perpetual Energy (PMT). His son John runs Paramount Resources (POU). Both are, by all accounts, chips off the old block.

 

Yes but Clayton is Chairman and majority shareholder. I think he is running the show.

[Guest notorious546]

I'd stay away from LTS. weak management team. unable to meet capital efficiency targets for many years while the latest ops update highlighted an big upset with its Swan Hills operations.

 

why pay for something that is shrinking in value? the elevated debt makes it an easy pass for me.

 

[gordoffh]

I wonder what kind of selling pressure there would be if LTS dropped below margin requirements in Canada which is 3 I believe . that along with tax loss flipping might be real bad. This is an important 3 quarter release. These guys better get it right.

[Guest 50centdollars]

I wonder what kind of selling pressure there would be if LTS dropped below margin requirements in Canada which is 3 I believe . that along with tax loss flipping might be real bad. This is an important 3 quarter release. These guys better get it right.

 

margin requirements is below $2.00

[alertmeipp]

Some funds closing out on oct and oil cant bounce above 82

 

I bet most of the margin selling is done given the 65 percent drop from top.

[alertmeipp]

Typical LTS release, operation issue here and there.    :-\

Swan Hills news is both good and bad, with certain WTI pricing, it's better for them not to piss money away. What is the 3rd infrastructure impairment they refer to?

 

 

Still no actual buyback, why have NCIB in place but never used it.

 

Cheap based on assets, but management is weak.

[Guest notorious546]

i haven't heard of many company's in the oil patch who use share buybacks. for E&P's it seems very few and far between.

[Sunrider]

i haven't heard of many company's in the oil patch who use share buybacks. for E&P's it seems very few and far between.

 

Manitok just announced one ... I liked the CEO on a previous call saying that he'd rather buy his own property at a low multiple than pay up for other properties at a higher multiple.

[aws]

I ended up starting around a 5% combined position in TGA and LTS without putting anywhere near enough due diligence into the purchases, and I've been justly punished for my sins.  It's almost comical how quickly things have deteriorated since I bought in - down 40% in a month.