PWE - Penn West Petroleum

[Joe689]

Yes, sorry was doing USD.  This american is investing in canada energy space :-(

[Cardboard]

You must wish never to have put a dime up here! So do I!

 

Almost all U.S. companies have performed really well with the increase in the oil price while in Canada, many trade at worst levels than in early 2016 with oil at $25!!!

 

Cardboard

[Spekulatius]

Many US companies are in the dumpster too, example CNX( which I am looking into but do not own). CNX actually does sell assets and uses the proceeds to buy back stock, yet the stock is still trading very cheaply and close to lows. Some sectors are just abandoned and small and mid cap E&P’s is just one of them.

[Liberty]

What a tough business... Oil has gone from the low 40s to a recent peak in the mid 70s in the past 12 months yet this thing has fallen almost 50% from its peak at 1.85 near the beginning of the year.

 

Crazy amount of D&A too... EBITDA margin TTM is around 13%, but EBIT margin is -60.2%. Capex has been higher than cash from ops since 2013...

 

And it was a $46 stock a little over a decade ago. So a 46x reverse multi-bagger.

 

Reminds me of The Frackers. Some industries just are really good at destroying shareholder capital (while usually making management rich).

 

With this level of volatility, I'm sure those who are good at trading can do something with it. I struggle seeing how long-term investors can find confidence, though, since commodity prices are unknowable, and even when they're going up it doesn't mean that a highly-levered-to-the-commodity business will do well. Maybe I'm missing something, which is why I keep revisiting commodity stocks once in a while (I try to learn from both what I like and what I dislike).

[undervalued]

Is this the case where you think you know the business by looking at the financials but in reality it's completely different? When I bought XCO, I thought I lost money because of bad timing (oil prices went from $80 to $25 per barrel). After reading this thread, maybe I am missing something else? I know this is hard (for those who lost money/has follow it for years), can someone try to explain what the lesson here is? Someone kept saying in hindsight, everything is 20/20.. In this case, I am not sure.

[Joe689]

Management matters

 

[undervalued]

Management matters

 

Someone was just saying this exact line in GE thread. However how can you identify it early on that management is bad and to avoid it? Looks like in the oil business, 90% of the companies or more have management who are looking for themselves.

[Liberty]

Is this the case where you think you know the business by looking at the financials but in reality it's completely different? When I bought XCO, I thought I lost money because of bad timing (oil prices went from $80 to $25 per barrel). After reading this thread, maybe I am missing something else? I know this is hard (for those who lost money/has follow it for years), can someone try to explain what the lesson here is? Someone kept saying in hindsight, everything is 20/20.. In this case, I am not sure.

 

I think it's just a bad business that has been good at selling hope, there's always a rainbow over the horizon, "look at this cherry-picked metric or that cherry-picked metric, doesn't it look good?" "If we can just sell this asset or get this oil price or whatever, we'll be golden", "forget about everything in the past, we're starting again from scratch and this time it'll be good!". That's what it seems to me at a glance, but I haven't spent much time on it.

[Liberty]

Management matters

 

Someone was just saying this exact line in GE thread. However how can you identify it early on that management is bad and to avoid it? Looks like in the oil business, 90% of the companies or more have management who are looking for themselves.

 

It helps to fish where the fish are. When you look at ranking of industries by ROIC over time, O&G is barely above zero, with high cyclicality and debt and generally bad and promotional management. So you almost have to be lucky just to break even. But I think what keeps people hooked is the cyclicality... Sometimes it'll rip up like crazy and everybody's getting rich all of a sudden, but all that can go away pretty quickly and for long periods, and because of the debt, high capex and operating leverage, it cuts deep. It could start again tomorrow and make a bunch of traders a lot of money, who knows?

[chrispy]

I think that is exactly it, the cyclicality. It's almost a lottery ticket in many people's minds. The success of FELP is the dream but rarely reality

 

I lost some money on PWE/OBE... Almost the perfect amount, it was a great lesson.

[Viking]

Management matters

 

Someone was just saying this exact line in GE thread. However how can you identify it early on that management is bad and to avoid it? Looks like in the oil business, 90% of the companies or more have management who are looking for themselves.

 

I find listening to the conference calls is the key. By the third conference call you should have a good fix on management and the business. I still remember listening to the RIM conference calls back when their business was floundering. By my third conference call i had lost all confidence that Jim Balsillie could be trusted in what he was saying. I sold my position and lost a little (15% i think) but i missed the big move down. This is also why in never got aggressive with IBM; every time i heard Gini Rommety speak i had less confidence in her leadership of the company. I look for if they are overly promotional. Do they answer questions honestly. Most important, is there consistency in their answers from conference call to conference call. Are they shareholder friendly with the profits of the company.

[Spekulatius]

Is this the case where you think you know the business by looking at the financials but in reality it's completely different? When I bought XCO, I thought I lost money because of bad timing (oil prices went from $80 to $25 per barrel). After reading this thread, maybe I am missing something else? I know this is hard (for those who lost money/has follow it for years), can someone try to explain what the lesson here is? Someone kept saying in hindsight, everything is 20/20.. In this case, I am not sure.

 

I think it's just a bad business that has been good at selling hope, there's always a rainbow over the horizon, "look at this cherry-picked metric or that cherry-picked metric, doesn't it look good?" "If we can just sell this asset or get this oil price or whatever, we'll be golden", "forget about everything in the past, we're starting again from scratch and this time it'll be good!". That's what it seems to me at a glance, but I haven't spent much time on it.

 

Yes, I think it is basically a bad business, kind of like airlines were back in the day - no barrier to entry, heavy capital outlays, management focused on growth and empire building, negative free cash flows.

[SharperDingaan]

TSX closing price, Nov-01, $C 0.97

Sep-2018 PP, p 20; NAV of $C 1.58, 2P NPV(10) of $C 1.18, Net Debt of $C 0.38

 

At $C 0.97 you are collateralized at 122% of 2P NPV(10), and it is though the two 'pending' asset sales had allready taken place, and there was zero debt. Then add to it that a year from now; the Enbridge Line 3 will be coming on-line, and OBE's existing hedges will have rolled off - delays and screw-ups excepted. Still think it's a terrible buy?

 

Step away from your screen, throw it in your sock drawer, and go do something else.

Isn't that what value-investors do?

 

SD

 

[Liberty]

TSX closing price, Nov-01, $C 0.97

Sep-2018 PP, p 20; NAV of $C 1.58, 2P NPV(10) of $C 1.18, Net Debt of $C 0.38

 

At $C 0.97 you are collateralized at 122% of 2P NPV(10), and it is though the two 'pending' asset sales had allready taken place, and there was zero debt. Then add to it that a year from now; the Enbridge Line 3 will be coming on-line, and OBE's existing hedges will have rolled off - delays and screw-ups excepted. Still think it's a terrible buy?

 

Step away from your screen, throw it in your sock drawer, and go do something else.

Isn't that what value-investors do?

 

SD

 

People have been saying things like this since the very first page of this thread (I know, I've read it all as a project last year). It's been "cheap" or "turning the corner" all the way down 90%+.

 

It could very well spike up tomorrow, but at this point it's clear that this wouldn't be because the value was predictable but rather a gamble on volatility/noise/luck. Some things belong to the "too hard" pile, IMO.

[SharperDingaan]

TSX closing price, Nov-01, $C 0.97

Sep-2018 PP, p 20; NAV of $C 1.58, 2P NPV(10) of $C 1.18, Net Debt of $C 0.38

 

At $C 0.97 you are collateralized at 122% of 2P NPV(10), and it is though the two 'pending' asset sales had allready taken place, and there was zero debt. Then add to it that a year from now; the Enbridge Line 3 will be coming on-line, and OBE's existing hedges will have rolled off - delays and screw-ups excepted. Still think it's a terrible buy?

 

Step away from your screen, throw it in your sock drawer, and go do something else.

Isn't that what value-investors do?

 

SD

 

People have been saying things like this since the very first page of this thread (I know, I've read it all as a project last year). It's been "cheap" or "turning the corner" all the way down 90%+.

 

It could very well spike up tomorrow, but at this point it's clear that this wouldn't be because the value was predictable but rather a gamble on volatility/noise/luck. Some things belong to the "too hard" pile, IMO.

 

Granted; different folks, different strokes.

We just recognize that there are different 'levels' of predictability, and that 'distance' offers a different perspective.

A fairly reliable double in 1 or even 2 years, for minimal work, is still a very good return. 

 

SD

 

[Liberty]

A fairly reliable double in 1 or even 2 years, for minimal work, is still a very good return. 

 

I'll make a note on my calendar to look again in a year.

 

As I said, it could spike up... or not. I don't see where the "reliable" part is, since people have been saying what you're saying since the beginning of this thread 4 years ago, and at the time it was considered already really cheap because it had just fallen 60-75%... To me that's more speculation than investment, hoping the volatility will go your way.

[SharperDingaan]

A fairly reliable double in 1 or even 2 years, for minimal work, is still a very good return. 

 

I'll make a note on my calendar to look again in a year.

 

As I said, it could spike up... or not. I don't see where the "reliable" part is, since people have been saying what you're saying since the beginning of this thread 4 years ago, and at the time it was considered already really cheap because it had just fallen 60-75%... To me that's more speculation than investment, hoping the volatility will go your way.

 

The 'realiable' is mathematics; a double in 1 year is a compound return of 100%, a double in 2 years is a compound return of 41%

As a penny stock priced < $1.00, it is by definition a speculation.

 

But unlike almost all other penny stocks this one has a real business that is producing daily, and has been doing so for many years. And a $C 0.98 increase in the share price, at ANYTIME over the next 2 years, is not a very onerous stretch. Hence, it's not exactly the typical 'speculation'.

 

If it works out it'll buy us a sizeable nice house in St John's, mortgage free.

If OBE simply bumps along it's just non-cash opportunity cost, and it's highly unlikely to BK over the interim.

 

SD

 

 

 

[Liberty]

The 'realiable' is mathematics; a double in 1 year is a compound return of 100%, a double in 2 years is a compound return of 41%

As a penny stock priced < $1.00, it is by definition a speculation.

 

But unlike almost all other penny stocks this one has a real business that is producing daily, and has been doing so for many years. And a $C 0.98 increase in the share price, at ANYTIME over the next 2 years, is not a very onerous stretch. Hence, it's not exactly the typical 'speculation'.

 

If it works out it'll buy us a sizeable nice house in St John's, mortgage free.

If OBE simply bumps along it's just non-cash opportunity cost, and it's highly unlikely to BK over the interim.

 

SD

 

???

[Spekulatius]

I have played similar situations before, but the results were hit and miss. Looking back at some of the double, well they became zeros (I sold befor this happens, because failure is mostly evident before). At this point, I am more tempted to play CVE, which is somewhat hedged against the heavy- light oil differentials and has a new managment and vastly improved  metrics after that I’ll advised acquisition of COP oil sand assets. I think  CVE also has the potential for a double (albeit less likely than OBE), but also much less likely to become a zero. Again, different strokes for different people.

[muscleman]

TSX closing price, Nov-01, $C 0.97

Sep-2018 PP, p 20; NAV of $C 1.58, 2P NPV(10) of $C 1.18, Net Debt of $C 0.38

 

At $C 0.97 you are collateralized at 122% of 2P NPV(10), and it is though the two 'pending' asset sales had allready taken place, and there was zero debt. Then add to it that a year from now; the Enbridge Line 3 will be coming on-line, and OBE's existing hedges will have rolled off - delays and screw-ups excepted. Still think it's a terrible buy?

 

Step away from your screen, throw it in your sock drawer, and go do something else.

Isn't that what value-investors do?

 

SD

 

People have been saying things like this since the very first page of this thread (I know, I've read it all as a project last year). It's been "cheap" or "turning the corner" all the way down 90%+.

 

It could very well spike up tomorrow, but at this point it's clear that this wouldn't be because the value was predictable but rather a gamble on volatility/noise/luck. Some things belong to the "too hard" pile, IMO.

 

I agree. I remember saying something similar in early 2017 when it was like $2. Has the name changed? I can't even find the name.

[nodnub]

It's called obsidian energy these days :)

OBE:TSX

 

TSX closing price, Nov-01, $C 0.97

Sep-2018 PP, p 20; NAV of $C 1.58, 2P NPV(10) of $C 1.18, Net Debt of $C 0.38

 

At $C 0.97 you are collateralized at 122% of 2P NPV(10), and it is though the two 'pending' asset sales had allready taken place, and there was zero debt. Then add to it that a year from now; the Enbridge Line 3 will be coming on-line, and OBE's existing hedges will have rolled off - delays and screw-ups excepted. Still think it's a terrible buy?

 

Step away from your screen, throw it in your sock drawer, and go do something else.

Isn't that what value-investors do?

 

SD

 

People have been saying things like this since the very first page of this thread (I know, I've read it all as a project last year). It's been "cheap" or "turning the corner" all the way down 90%+.

 

It could very well spike up tomorrow, but at this point it's clear that this wouldn't be because the value was predictable but rather a gamble on volatility/noise/luck. Some things belong to the "too hard" pile, IMO.

 

I agree. I remember saying something similar in early 2017 when it was like $2. Has the name changed? I can't even find the name.

[Joe689]

The dip continues.  It is being priced for insolvency.  If the diffs stay where they are, it will become insolvent.

 

Where is the government?  How can they led money bleed out of the country to benefit of the US?  All we need is shovels in the ground

 

[Liberty]

Eyeballing it, it's about as low as it's been since the early 1990s, but adjusted for inflation, it's probably all-time lows.

 

That's the thing with commodity stocks. You can analyze and price it as much as you want based on some commodity price, or a probability distribution of prices, but you or management have no control over what the actual commodity price will actually be in the future (and for how long), and there's usually a bunch of operating leverage to it and fixed costs that have to be paid even when you're not making money, so the equity tranche can get squeezed pretty quickly.

[SharperDingaan]

Eyeballing it, it's about as low as it's been since the early 1990s, but adjusted for inflation, it's probably all-time lows.

 

That's the thing with commodity stocks. You can analyze and price it as much as you want based on some commodity price, or a probability distribution of prices, but you or management have no control over what the actual commodity price will actually be in the future (and for how long), and there's usually a bunch of operating leverage to it and fixed costs that have to be paid even when you're not making money, so the equity tranche can get squeezed pretty quickly.

 

Which is also the reason why you put it in the sock drawer .....

At a per share cost that is < 1/2 the cost of a cup of coffee - it's not much of a risk.

 

SD

[nodnub]

 

At a per share cost that is < 1/2 the cost of a cup of coffee - it's not much of a risk.

 

SD

 

Are you implying that A) an investor should only buy one share or B) that stocks with a low-price per share are not risky?  ;D

 

Using this logic Berkshire A shares would be one of the riskiest investments in the world  :D