PWE - Penn West Petroleum

[longlake95]

Thanks SD, i'll start digging...ya i think that there are levers  to be pulled...but will French do it? I think Hendry was at Talisman when it was taken out so he'd be familar with that option.

[constala]

Who are the mysterious and powerful Kernaghan characters that just scooped 5.5% of the capital without budging the price?

 

https://www.sec.gov/Archives/edgar/data/1334388/000134100417000631/0001341004-17-000631-index.htm

 

Do they have some activist skills or are they passive in their investments? Any Canadian scuttlebutt and gossip would be much appreciated.

 

 

 

 

 

[SharperDingaan]

Who are the mysterious and powerful Kernaghan characters that just scooped 5.5% of the capital without budging the price?

 

https://www.sec.gov/Archives/edgar/data/1334388/000134100417000631/0001341004-17-000631-index.htm

 

Do they have some activist skills or are they passive in their investments? Any Canadian scuttlebutt and gossip would be much appreciated.

 

Its an activist fund that usually knows its stuff. We would put it to you that like everyone else they can read the tea leaves, and have come to the same conclusion. It really says that the Q3 earnings & subsequent public announcements are likely to be interesting. May we all do well.

 

SD

 

[SharperDingaan]

Who are the mysterious and powerful Kernaghan characters that just scooped 5.5% of the capital without budging the price?

 

https://www.sec.gov/Archives/edgar/data/1334388/000134100417000631/0001341004-17-000631-index.htm

 

Do they have some activist skills or are they passive in their investments? Any Canadian scuttlebutt and gossip would be much appreciated.

 

Its an activist fund that usually knows its stuff. We would put it to you that like everyone else they can read the tea leaves, and have come to the same conclusion. It really says that the Q3 earnings & subsequent public announcements are likely to be interesting. May we all do well ;).

 

SD

 

 

Congratulations ladies and gentlemen.

 

SD

[Joe689]

Did I miss something?  But good news on new shareholder

[SharperDingaan]

http://www.insidermonkey.com/insider-trading/filing-13dg/71489

Courtesy of the IV board.

 

SD

[FFHWatcher]

Who are the mysterious and powerful Kernaghan characters that just scooped 5.5% of the capital without budging the price?

 

https://www.sec.gov/Archives/edgar/data/1334388/000134100417000631/0001341004-17-000631-index.htm

 

Do they have some activist skills or are they passive in their investments? Any Canadian scuttlebutt and gossip would be much appreciated.

 

Its an activist fund that usually knows its stuff. We would put it to you that like everyone else they can read the tea leaves, and have come to the same conclusion. It really says that the Q3 earnings & subsequent public announcements are likely to be interesting. May we all do well ;).

 

SD

 

 

Congratulations ladies and gentlemen.

 

SD

 

SD, Maybe it is only me but I completely lack the ability to understand how you get from Point A to Point B 

 

Point A

a) A new shareholder of Obsidian with the last name Kernaghan and various entities he controls/influences including $$ in his kids names, spends almost $30M US$  to buy shares.  It looks like he is an Investment Advisor (Father and Son team), has owned Securities firms in Canada but doesn't seem to run any pools/funds of money and certainly not activist funds, nor have I seen any history of this. Looks like he has likely a personal investment pool called Kernwood Ltd that has investment assets (maybe this is the proceeds from selling his various securities firms over the years, who knows....).  His son sits on several boards of Canadian companies and seems to stay there for many, many years.  Seem like long term investors but I didn't find anything that even remotely suggest activist (unless Google is hiding stuff from me).

 

Point B

a) "It's an activist fund" 

b) "It really says that the Q3 earnings & subsequent public announcements are likely to be interesting. May we all do well"

c)  "Congratulations ladies and gentlemen"

 

Joe689 summed it up perfectly, 'Did I miss something?' 

I certainly missed how you got from Point A to Point B.  It looks like total made up speculation on your part, which you are way to smart to suggest.  So, what did Joe689 and I miss that lead you to conclude, Congratulations ladies and gentleman?

 

[SharperDingaan]

Our bad.

 

Its not the size of the purchase (assumes its a small weight in their 'total' portfolio), it's the fact that 1) it's an accumulation over roughly the last 6 months when sentiment has been negative, 2) it's now gone over 5% (assumes its a driver behind the disclosure) and 3) the history of holding board seats. If they are invited onto the board; we can think of them as insiders, and their activity evidences that there was significant inside buying over the summer All good.   

 

We should not have used the term 'activist'; it was an error, and we apologize.

They were a name within the Canadian securities community, and we would expect they remain well connected. We would also remind everyone that you do not have to manage other peoples money, your well connected private opinion on XYZ can be just as effective; particularly if you are not just voting with your wallet. Again all good.

 

We have ASSUMED they have a friendly board seat invitation, and accumulated in part - because of it. We have also ASSUMED that for transparency purposes, they have disclosed ahead of a pending announcement. Should this be the case it has been very elegantly done, and warrants a call out.

 

Agreed this is a speculation on our part, but we think there is reasonable basis for it.

Per the last disclosure we know that Q2 drilling was tied in at the beginning of Q3, additional wells were tied in over Q3, the average o/g price for Q3 was higher than Q2, and netbacks were expected to improve by $1/bbl over 2H 2017 - higher average throughput, higher margin, higher CF/share. During Q3 OBE also made statements to the effect that they are open to consolidating their shares, and there were multiple insider buys.

 

Mid November we should find out if we're in the ball park.

If we are - we may all be doing very well.

 

SD     

     

[Joe689]

Boy, tough cookie we have here.  No love.  We need tangible results.  Nothing else can break this.  Tax loss selling is surely hitting this.  Nobody big wants to touch this with SEC overhang.  And here we are at >52 oil.  Last time this happened, we were trading above 2.  Now we are under 1 and surely more far along with drilling than before.

 

Time to double down?  Or is a reverse split coming to whack us

 

 

[longlake95]

Ya, I agree. Canadian oils are way out of favour. I'm still adding here and there. Just added yesterday - and last week. I am encouraged by the recent purchase by an institutional investor of 7% or so of the stock.

[Joe689]

Well I doubled down.  This price seems like a gift to me especially with the movements in oil.

 

If Q3 is good, growth, earnings, etc and the market ignores it, they need to ditch public markets.  The public markets are not benefiting them any.  They should go private.  I have seen a couple companies get crazy cheap in the past, and price seeming to go down day after day.  Then an institution comes and scoops them up.  Always sad because the premium is only like 40%.  They screw over everyone who bought in early and rob it. 

[Liberty]

I guess it's hard to make money on a stock that is down 97% since its peak 12 years ago, and down 57% compared to the price in 1996 (and that's not adjusted for the inflation in the intervening 21 years). Talk about a reverse compounder. I'm not judging, I've ridden some of those a good way down in the past. But still, when Buffett talks about 1-foot hurdles vs 6-foot hurdles, this kind of stuff comes to mind for me  :-\

[Joe689]

I guess it's hard to make money on a stock that is down 97% since its peak 12 years ago, and down 57% compared to the price in 1996 (and that's not adjusted for the inflation in the intervening 21 years). Talk about a reverse compounder. I'm not judging, I've ridden some of those a good way down in the past. But still, when Buffett talks about 1-foot hurdles vs 6-foot hurdles, this kind of stuff comes to mind for me  :-\

 

I guess that might have to do why no one wants to touch this stock.  But isn't that where we come in?  Value investors.    Also why I do not think the public markets are benefiting this company anymore.

[longlake95]

I guess it's a show me stock. Until French delivers - PWE...ooops...OBE bumps along. That being said the transformation at OBE has be remarkable - from near death to a solidly lousy company  ;) in a commodity sector. That doesn't mean we can make money. U can't hold a beach ball underwater forever, eventually the market will catch on. I too, hope it doesn't get taken private - only the buyer will win.

[Liberty]

I guess it's hard to make money on a stock that is down 97% since its peak 12 years ago, and down 57% compared to the price in 1996 (and that's not adjusted for the inflation in the intervening 21 years). Talk about a reverse compounder. I'm not judging, I've ridden some of those a good way down in the past. But still, when Buffett talks about 1-foot hurdles vs 6-foot hurdles, this kind of stuff comes to mind for me  :-\

 

I guess that might have to do why no one wants to touch this stock.  But isn't that where we come in?  Value investors.    Also why I do not think the public markets are benefiting this company anymore.

 

The markets can be inefficient, but they aren't quite as inefficient as most value investors seem to want to believe, especially over very long periods of time. Is it really the market's fault or is it that this company's revenues are shrinking rapidly, its profit margins negative, its cashflows often negative and smaller than capex, its equity is shrinking, etc. Does it really have something like 10 billion of PP&E with 7bn of accumulated depreciation or am I misreading that?

 

It's not your job to buy things just because others don't want them. You also have to be right on your variant perception of the value of the company, and with melting ice cubes in commodity sectors, that's particularly tough because nobody knows what commodities will do and time is against you with the melting. And if it's capital-heavy on top of that, whatever they make usually just goes back in to maintain the asset base and isn't going to owner's earnings. By the time you start expanding another down cycle begins because everyone was expanding at the same time...

 

I just quick-glanced it. I'm sure its presentations are full of slides about the riches it possesses just under the ground and if it only can get them out it'll make multiples of market cap and get out-of-this-world IRRs, but history isn't on your side. I think base rates are more useful than most people think. Most turn-arounds never turn. But it's certainly volatile, so I suppose if your skill is trading in and out of things at the right moments, maybe that works. Or it can be speculation on commodity prices, but I haven't seen people with consistent track records of forecasting that. As a long term investment, something pretty dramatic would have to change to make the future different from the past, and with all the capex that will be required just to maintain that huge PP&E...

 

Anyway, I'm probably super wrong, don't mind me. I just like to sometime be a tourist on companies and industries I know little about because I learn things that way, and sometimes an outside perspective can spur fresh thinking.

[StevieV]

Liberty,

 

I am no sure your comments are particularly relevant for this particular company.  The company's stock price has taken a well-deserved thrashing.  They were bloated, high-cost and inefficient.  They were able to muddle along until oil prices crashed and they were swimming naked.  That being said, the company has made a large number of moves in the recent past and the result is very different than 5 or 10 years ago.

 

One need only look at the company's radically reduced oil production and land and radically reduced balance sheet to go with it.  They have much less production, but a better cost position and balance sheet to go with it.  Not to mention, a much smaller market cap and share price.  You don't have to hope for a future transformation; it has already happened.

 

I think this is something like if Sears had successfully sold and shuttered 80% of its stores, used the sales to fix its balance sheet and kept a good 20%.  But, it is better than that, because O&G companies don't have to convince consumers to come back to the stores.

 

One of the hard things about turning around a Sears or Radio Shack or Aeropostale or whatever, is that once the brand is tarnished, it is very difficult to polish it back up.  That is simply less necessary with an oil and gas company.

 

Of course, PWE/OBE had the name change to try to emphasize the differences with the past.  I am not sure it has worked, but I believe the message is largely true.  The OBE of today is much different than the PWE of 5 years ago.

 

As with any oil company, the price of oil is critical.  With today's rally, I am hoping that oil prices have finally started to break through.  I guess we will see.

 

I am long OBE.

[SharperDingaan]

PWE was built for a different era, it had all the right people in it for the time, and it made everyone a LOT of money. But the times changed, PWE didn't; and despite the best efforts of all the kings men (accounting fiddles) - Humpty-Dumpty fell off the wall. Humpty should have died, and very nearly did; there was heavy damage ... but he managed to crawl away - & live.

 

What doesn't kill you makes you stronger, and we see different versions of this all the time.

FFH at 50, HCG at 6, Romanov's escaping the Russian Revolution, etc. The common denominators are 1) a successful escape, 2) a significant nest egg of high quality assets from which to start again, & 3) an extended period of smoke and ridicule - hiding the rebuild. Then suddenly, everything changes - seemingly overnight ;)

 

We would suggest that OBE is one of these Humpty's, & that they are either about to emerge, or very close to it.

Of course, may we all do well.

 

SD

 

[Uccmal]

Liberty,

 

I am no sure your comments are particularly relevant for this particular company.  The company's stock price has taken a well-deserved thrashing.  They were bloated, high-cost and inefficient.  They were able to muddle along until oil prices crashed and they were swimming naked.  That being said, the company has made a large number of moves in the recent past and the result is very different than 5 or 10 years ago.

 

One need only look at the company's radically reduced oil production and land and radically reduced balance sheet to go with it.  They have much less production, but a better cost position and balance sheet to go with it.  Not to mention, a much smaller market cap and share price.  You don't have to hope for a future transformation; it has already happened.

 

I think this is something like if Sears had successfully sold and shuttered 80% of its stores, used the sales to fix its balance sheet and kept a good 20%.  But, it is better than that, because O&G companies don't have to convince consumers to come back to the stores.

 

One of the hard things about turning around a Sears or Radio Shack or Aeropostale or whatever, is that once the brand is tarnished, it is very difficult to polish it back up.  That is simply less necessary with an oil and gas company.

 

Of course, PWE/OBE had the name change to try to emphasize the differences with the past.  I am not sure it has worked, but I believe the message is largely true.  The OBE of today is much different than the PWE of 5 years ago.

 

As with any oil company, the price of oil is critical.  With today's rally, I am hoping that oil prices have finally started to break through.  I guess we will see.

 

I am long OBE.

 

Yeah, the transformation is done.  Obe isn't the only company getting no love out there.  Whitecap, in which I have a rather sizable position in was bouncing along its 5 year low this week.  And Whitecap is solidly proftable down to close to $40 oil, with a fairly safe yield of > 3%.    Took the opportunity to buy more shares in WCP.

 

The only things I would like to see OBE do is a share consolidation, and delisting from NYSE. 

 

Liberty, the comparables for OBE are worthless.  It is not the same company at all.  It is a true turnaround.  Either the share price rises on its own as the price of the commodity rises or it gets taken out.  Should it get taken out I would like to make some profit. 

 

To oil prices.  We can only speculate but most evidence suggests that the worlwide glut is disappearing rapidly.  Chances are it overshoots into a supply crunch.  The Saudis would love to see that with their big IPO coming.  I suspect the Russians would love to see it too.  If and its a big if, they can maintain their pumping discpline well into a supply crunch we could see the oil price really jump. 

 

North of 60 for a consistent period and we will see OBE, WCP, etc.  going muliples of their present share price.  The costs will stay low, to slightly elevated, so everything goes tomthe shareholders.  A higher oil price wont hurt the huge holdings I have in renewables either. 

 

We dont know where the price of oil will go but my guess is it will keep grinding higher, in it usual see-saw fashion. 

 

 

[Liberty]

Good if it's the case that it has actually turned. Past couple Qs have less negative op margins, so I suppose that's something. I was taking the high-altitude view, not looking at this particular moment in time. And reading some of the first pages of this thread which began in 2014 and have some very similar commentary to what I'm reading now, including some disbelief at oil being as ridiculously low as $90 for any extended period. Looks like this thing has incinerated billions in capital... I wonder how many millions management made during the past 10 years. GLTA

[SharperDingaan]

Good if it's the case that it has actually turned. Past couple Qs have less negative op margins, so I suppose that's something. I was taking the high-altitude view, not looking at this particular moment in time. And reading some of the first pages of this thread which began in 2014 and have some very similar commentary to what I'm reading now, including some disbelief at oil being as ridiculously low as $90 for any extended period. Looks like this thing has incinerated billions in capital... I wonder how many millions management made during the past 10 years. GLTA

 

Just keep in mind that they are just one announcement away, and the 'turnaround' clock has been ticking for some time now. As Uccmal points out - their only financial comparable's will be industry peers.

 

SD

 

[Uccmal]

Good if it's the case that it has actually turned. Past couple Qs have less negative op margins, so I suppose that's something. I was taking the high-altitude view, not looking at this particular moment in time. And reading some of the first pages of this thread which began in 2014 and have some very similar commentary to what I'm reading now, including some disbelief at oil being as ridiculously low as $90 for any extended period. Looks like this thing has incinerated billions in capital... I wonder how many millions management made during the past 10 years. GLTA

 

 

Hindsight is 20/20 no?  The original thesis got blindsided by the oil price drop.  How could we have known?  Its funny how everyone is an expert after the fact.  What you see in this thread is real time speculation as to what was going on.  Had the oil price not dropped PWE would have quickly delvered and turned around and made a fortune.  But that is not how it unfolded. 

 

The company that incinerated billions of capital no longer exists.  The continuity was broken in June 2016. 

 

Liberty, I respect you alot but you haven't done the work on this one. 

[Cardboard]

Ask him about his not happened yet house price crash in Canada. How many posts on that? How many years?  :o

 

Cardboard

[Liberty]

Ask him about his not happened yet house price crash in Canada. How many posts on that? How many years?  :o

 

Cardboard

 

If you actually read what I wrote, it's that I thought housing in Canada was too expensive for me and that I couldn't predict when things will change. It's still too expensive, and I still can't predict when things will change, so rather than have my money in a house, I've had it compound faster than the housing market elsewhere. It's very different from saying that PWE is cheap at $6, buying it, and having it fall under $1.

[Liberty]

Good if it's the case that it has actually turned. Past couple Qs have less negative op margins, so I suppose that's something. I was taking the high-altitude view, not looking at this particular moment in time. And reading some of the first pages of this thread which began in 2014 and have some very similar commentary to what I'm reading now, including some disbelief at oil being as ridiculously low as $90 for any extended period. Looks like this thing has incinerated billions in capital... I wonder how many millions management made during the past 10 years. GLTA

 

 

Hindsight is 20/20 no?  The original thesis got blindsided by the oil price drop.  How could we have known?  Its funny how everyone is an expert after the fact.  What you see in this thread is real time speculation as to what was going on.  Had the oil price not dropped PWE would have quickly delvered and turned around and made a fortune.  But that is not how it unfolded. 

 

The company that incinerated billions of capital no longer exists.  The continuity was broken in June 2016. 

 

Liberty, I respect you alot but you haven't done the work on this one.

 

My point is that I'm not comfortable investing in capital-heavy, cyclical, commodity businesses, and sometimes I have a hard time seeing how others get comfortable, so I like to read these threads to try to learn. My point is not that I'm an expert - I said that I didn't know - my point is I wonder how others think they can know what will happen considering how unpredictable and brittle these things seem to turn out to be.

 

The whole "the company no longer exists" is very convenient. Kind of like hedge funds who blow up, close up shop, and start a new one. I get that it's new management and everything, but people liked the previous business a few years ago and thought it was very cheap too, and that oil was sure to go back up, so who says this new one has a different future? That's more my question. I'm not saying it'll do well or that it'll do badly, I'm just curious how it's possible to even know. Even Watsa was hugely bullish on Tom Ward when I went to the AGM.

 

Maybe I just have PTSD because when I used to invest in related-types of companies years ago, none really did well despite everybody's strong belief at the time that they had good management, were cheap, there were structural/secular reasons why they were going to do well, we were at the bottom of a cycle/riding a decade-long super-cycle, that the market was overlooking them, they were high quality compared to their peers, etc (ALS.to, FTP.to, EGD.to, PSD.to...).

[Uccmal]

Good if it's the case that it has actually turned. Past couple Qs have less negative op margins, so I suppose that's something. I was taking the high-altitude view, not looking at this particular moment in time. And reading some of the first pages of this thread which began in 2014 and have some very similar commentary to what I'm reading now, including some disbelief at oil being as ridiculously low as $90 for any extended period. Looks like this thing has incinerated billions in capital... I wonder how many millions management made during the past 10 years. GLTA

 

 

Hindsight is 20/20 no?  The original thesis got blindsided by the oil price drop.  How could we have known?  Its funny how everyone is an expert after the fact.  What you see in this thread is real time speculation as to what was going on.  Had the oil price not dropped PWE would have quickly delvered and turned around and made a fortune.  But that is not how it unfolded. 

 

The company that incinerated billions of capital no longer exists.  The continuity was broken in June 2016. 

 

Liberty, I respect you alot but you haven't done the work on this one.

 

My point is that I'm not comfortable investing in capital-heavy, cyclical, commodity businesses, and sometimes I have a hard time seeing how others get comfortable, so I like to read these threads to try to learn. My point is not that I'm an expert - I said that I didn't know - my point is I wonder how others think they can know what will happen considering how unpredictable and brittle these things seem to turn out to be.

 

The whole "the company no longer exists" is very convenient. Kind of like hedge funds who blow up, close up shop, and start a new one. I get that it's new management and everything, but people liked the previous business a few years ago and thought it was very cheap too, and that oil was sure to go back up, so who says this new one has a different future? That's more my question. I'm not saying it'll do well or that it'll do badly, I'm just curious how it's possible to even know. Even Watsa was hugely bullish on Tom Ward when I went to the AGM.

 

Maybe I just have PTSD because when I used to invest in related-types of companies years ago, none really did well despite everybody's strong belief at the time that they had good management, were cheap, there were structural/secular reasons why they were going to do well, we were at the bottom of a cycle/riding a decade-long super-cycle, that the market was overlooking them, they were high quality compared to their peers, etc (ALS.to, FTP.to, EGD.to, PSD.to...).

 

Fair enough.  Coincidentally, Tom Ward made me sick to my stomach the first time he came to our events.  Its hard to explain but he was greasy in a creepy way to me.  That was when I decided to start divesting FFH.  Long spoons for dinner, indeed. 

 

I'll say no more on that since the thread is about OBE.