PWE - Penn West Petroleum

[heth247]

 

https://www.inplayoil.com/sites/2/files/documents/press_release_sept_2018_-_disposition_increased_capex_and_guidance_-_final.pdf

This is Sep-2018, 72% liquids, at West Pembina. There are others in the Cardium as well, with similar liquids content, and the same year. The numbers are not definitive, but there are hard evidence (not guesses) as to what high liquids Cardium production, is actually worth.

 

SD

 

Well, that was done for 250 boe/d in Oct 2018, when WTI was at $70.....  I don't think OBE can get anything close to it for now. Frankly, I would be happy if OBE can fetch what Pengrowth got in their recent sale, $33K/boe for all of OBE's 27000 boe/d production.

[nodnub]

It's very Pythonesque. SD telling everyone "'tis but a scratch", and then having another limb lopped off.

 

Anytime I feel the urge to invest in a commodity business I just revisit this thread to remind myself how easy it is for seemingly knowledgeable people to have their dollars turned into pennies.

 

The business view and the trading view (stops, loss cover, etc) are two very different things.

I just recognize that in a sale of the business (or pieces thereof), the business valuation will prevail, and that the share price will reflect that valuation at the time the transaction occurs. Until then the share price just reflects the days market speculation, expressed as supply/demand for the shares.

 

If you think the market is right, you shouldn't be here. If you think the market is wrong, it's an opportunity.

I see a market view which says that anything to do with WCSB o/g is utter sh1te, and is pricing accordingly, at historic lows. Yet I also see lots of small/intermediate WCSB operators, continuing to run profitable but struggling companies, that prove otherwise, and on a daily basis. If the market is right there should have been lots of WCSB bankruptcies; whereas the facts are that there have been some - but a lot fewer than expected.

 

We just hold a different, and very unpopular view.

 

SD

 

Sharper, what do you think of the risk of the following scenario...  Say for example that the share price drops 50% from here (from $0.60 to $0.30) and then management makes a buyout offer for $0.40 (33% premium over $0.30 price).  Does a deal happen?  Do the minority shareholders get forced out?   

 

I saw that Fibrek shareholder lawsuit was successful.  How many years ago was the buyout?  Who here can wait that long?

 

This is a traders view, not the business valuation view.

 

Whatever deal, and whoever makes it, the transaction has to be approved by the BOD. By law, the BOD is required to evidence their DD, and that the proposed deal was the highest and best alternative at the time. The bank has not foreclosed on them, business as usual is the base-line, and the value of a business generating 120M+ of FFO/year is what has to beaten. If a buyer just wants an asset package, the buyer has to offer more than what OBE is already making from that package. The prevailing share price, and the markets view of OBE, has very little to do with it.

 

SD

 

Sharper,

 

Have you ever owned something that management took private at less than what you thought was a fair price?  What can you do in that situation except start legal process? (expensive and could take many years to resolve)

 

Do you think successful buyout prices are usually more related to fair business valuation or on basis of premium to recent trading values?

[SharperDingaan]

There is risk to everything we do. Either you are comfortable with that, or you are not.

In a prior life I've also been the management, attempting a buy-out.

 

We hold a long share position.

But a good portion of it is just reinvested swing-trade net gains, and dividend cash flow from other o/g companies. And we have systematically hedged over time via the options market. Sure, we own some shares; but its primarily house money, not capital that we had to put up.

 

If it goes our way, we look like a hero, and can afford to buy a house. If it doesn't, we look like a bum, but don't lose much.

We are not in the wealth management business, and could care less what people think of us.

 

SD

 

 

[blainehodder]

Seriously, if you are good enough at swing trading around your core position that you are out of the hole on this level of a disaster investment, you should stop investing in companies and focus all of your time on swing trading. Also, congratulations if that is true.

[SharperDingaan]

Seriously, if you are good enough at swing trading around your core position that you are out of the hole on this level of a disaster investment, you should stop investing in companies and focus all of your time on swing trading. Also, congratulations if that is true.

 

I did not say that we were out of the hole.

 

We are also both wise enough to recognize that one does not have to touch the underlying shares to swing trade.

OBE has a thriving option market - all you had to do was write calls, keep the premium, and reinvest it in new shares at the end of the specific time period. Then let the market work very hard, to offer you a lower re-entry price ;)

 

SD

 

[Liberty]

Seriously, if you are good enough at swing trading around your core position that you are out of the hole on this level of a disaster investment, you should stop investing in companies and focus all of your time on swing trading. Also, congratulations if that is true.

 

I did not say that we were out of the hole.

 

We are also both wise enough to recognize that one does not have to touch the underlying shares to swing trade.

OBE has a thriving option market - all you had to do was write calls, keep the premium, and reinvest it in new shares at the end of the specific time period. Then let the market work very hard, to offer you a lower re-entry price ;)

 

SD

 

There's no such thing as a free lunch. That's not how options work.

[muscleman]

Seriously, if you are good enough at swing trading around your core position that you are out of the hole on this level of a disaster investment, you should stop investing in companies and focus all of your time on swing trading. Also, congratulations if that is true.

 

I agree. It is far easier to be good at one thing than trying to be good at two things. If SD is so good at swing trading, it makes sense to just focus on getting better and better at that. Also, there is no such a thing as house money or own capital. The moment you make some profits, that becomes your own money.

[SharperDingaan]

 

https://www.inplayoil.com/sites/2/files/documents/press_release_sept_2018_-_disposition_increased_capex_and_guidance_-_final.pdf

This is Sep-2018, 72% liquids, at West Pembina. There are others in the Cardium as well, with similar liquids content, and the same year. The numbers are not definitive, but there are hard evidence (not guesses) as to what high liquids Cardium production, is actually worth.

 

SD

 

Well, that was done for 250 boe/d in Oct 2018, when WTI was at $70.....  I don't think OBE can get anything close to it for now. Frankly, I would be happy if OBE can fetch what Pengrowth got in their recent sale, $33K/boe for all of OBE's 27000 boe/d production.

 

You need to re-check your data

https://economicdashboard.alberta.ca/OilPrice

 

Sep-2018, WTI was indeed USD 70.07, the differential was USD 29.70, and WCS was USD 40.37

But Oct-2019, WTI was USD 53.96, the differential was USD 12.00, and WCS was USD 41.96

Todays net price for WCS is HIGHER than it was back then - so if the price was 65K/flowing boe ...  should it not be at least that in today's, more profitable environment.

 

If you didn't pick that up (an easy test), you really need to be critically asking yourself why ...

You genuinely didn't know ? or was it because your information came from a heavily biased source  ;)

 

SD

 

 

 

[Liberty]

It's impressive how asserting things in a confident tone and implying things without really saying them will keep some people believing you all the way down...

 

This stock is down 99.7% from peak and 99% since this thread was created. Nobody has made money on this, except management through salaries, and maybe someone that was short from the start (which I haven't seen in this thread, and I've read all pages), and even then we'd have to look at borrow and option costs vs. the opportunity cost of just owning an index that went up massively during that same period (so the net loss is even bigger than 99.7%, as crazy as that sounds--from OBE peak, SPY is up 182% and NASDAQ 291%, so the delta is around 3-4x, and if you beat indexes (why invest actively otherwise?), it's even more).

 

This is a very volatile stock that is basically an equity stub, so at some point it may spike, maybe 50% or 100%, who knows, and then some people will say they were right about it, just had to be patient, etc. I know that day is coming. But I'm also pretty sure that the odds that their average cost basis + opportunity cost will be anywhere close to the bottom tick is very low... So let's be careful about bagholder-accounting of only looking at the last trade rather than all the capital used and over what period. When things go down this much this fast, you need multi-baggers just to partially get out of the hole, it's almost impossible.

[muscleman]

It's impressive how asserting things in a confident tone and implying things without really saying them will keep some people believing you all the way down...

 

This stock is down 99.7% from peak and 99% since this thread was created. Nobody has made money on this, except management through salaries, and maybe someone that was short from the start (which I haven't seen in this thread, and I've read all pages), and even then we'd have to look at borrow and option costs vs. the opportunity cost of just owning an index that went up massively during that same period (so the net loss is even bigger than 99.7%, as crazy as that sounds--from OBE peak, SPY is up 182% and NASDAQ 291%, so the delta is around 3-4x, and if you beat indexes (why invest actively otherwise?), it's even more).

 

This is a very volatile stock that is basically an equity stub, so at some point it may spike, maybe 50% or 100%, who knows, and then some people will say they were right about it, just had to be patient, etc. I know that day is coming. But I'm also pretty sure that the odds that their average cost basis + opportunity cost will be anywhere close to the bottom tick is very low... So let's be careful about bagholder-accounting of only looking at the last trade rather than all the capital used. When things go down this much this fast, you need multi-baggers just to partially get out of the hole, it's almost impossible.

 

Yep. That's exactly what's going on. It didn't pass my smell test since day one but SD just kept talking convincingly.

[Joe689]

Another CEO change. 

 

Now the hedge fund manager is running the show... an oil company

[Liberty]

https://www.obsidianenergy.com/press-releases/obsidian-energy-appoints-stephen-loukas-interim-president-ceo-and-makes-other-appointments-to-management-team-including-peter-scott-as-the-senior-vice-president-cfo-announces-reconfirmation-of/

 

CEO and CFO change.

[Joe689]

Some action.  There is almost that 100% from low.  Dead cat?  Or something is coming. 

[FFHWatcher]

Some action.  There is almost that 100% from low.  Dead cat?  Or something is coming.

 

If it's not a dead cat bounce then why aren't insiders buying?

[Joe689]

The easy answer is "Strategic Alternatives".    Really never seen insider trading during a strategic review process.  Not to mention, this process involved marketing of several packages.    Before review, Peace River was trying to close for 3 months

[SharperDingaan]

Some action.  There is almost that 100% from low.  Dead cat?  Or something is coming.

 

It may well just be as simple as the bluff having been called.

We don't have the constant drip on the shares anymore, which had been very effective.

Probably because they've accumulated all that they could reasonably expect to - and now they're your friend  :D

 

Wise men don't write long-dated naked calls, and they don't mention it until AFTER those calls have expired.

The not-so-wise ... have little choice but to buy in as much as they can, as soon as they can, and pray that it keeps going up  ;)

The end result of short covering, and options related buying, looks the same.

 

The TMP has re-started construction, it's around xmas, it's tangible, it's visible, and for a great many people it is desperately needed work, that could not have come at a better time. Sentiment is changing, and with it - the what is now possible versus impossible. They may have either a small asset sale, a farm-in, or a commitment of new partner funding around PR. All good.

 

SD

 

 

 

 

 

[FFHWatcher]

All Good!  (this week).  The previous 99 weeks, not so much  >:(

[Liberty]

All Good!  (this week).  The previous 99 weeks, not so much  >:(

 

Only down 78% in the past 12 months now. Great success!

[Liberty]

Interesting factoid about energy investing in the past decade:

 

"There have been 42 10-baggers in the S&P 1500 this decade while 1 out of every 8 stocks in the S&P 1500 Energy sector is down 90%+ over the last decade."

 

Via

[heth247]

Interesting factoid about energy investing in the past decade:

 

"There have been 42 10-baggers in the S&P 1500 this decade while 1 out of every 8 stocks in the S&P 1500 Energy sector is down 90%+ over the last decade."

 

Via

 

Doesn't this suggest that we are more likely to find 10-baggers in energy over the next decade?

 

WTI is above $60, bad hedges is gone. OBE can make plenty FCF (relative to its current market cap) and deleverage if WTI stabilize at $60. Oil does not even have to go to $70 to make OBE a 10-bagger from current price level. Is there any reason not to get in now, other than this is a hated stock?

 

 

[blainehodder]

Interesting factoid about energy investing in the past decade:

 

"There have been 42 10-baggers in the S&P 1500 this decade while 1 out of every 8 stocks in the S&P 1500 Energy sector is down 90%+ over the last decade."

 

Via

 

Doesn't this suggest that we are more likely to find 10-baggers in energy over the next decade?

 

WTI is above $60, bad hedges is gone. OBE can make plenty FCF (relative to its current market cap) and deleverage if WTI stabilize at $60. Oil does not even have to go to $70 to make OBE a 10-bagger from current price level. Is there any reason not to get in now, other than this is a hated stock?

 

What kind of logic is this? 10 baggers have mostly occured in tech and will continue to mostly occur in tech. 10 baggers are almost NEVER a result of multiple expansion and almost always a result of real economic growth (rev, eps, fcf). So no, OBE is not likely to be a 10 bagger. Nor is any other company that doesn't have massive reinvestment opportunities in high margin, high ROIC projects at scale. Energy does not offer massive reinvestment opportunities at near infinite returns on capital over long periods of time and never will. It can offer high jackpot wins in a short period of time, but when that happens the market attracts drilling and margins and prices get smoked. This is a commodity business. You think OBE will ramp revs by a factor of 5-10? You think any energy company will be a 10 bagger given the ease of entry, and ease of locking in economics over frack well life-cycles? If so, you need a damn good reason why that would be true.

 

If you want 10 baggers focus on things that scale up with high ROE, high margins, and high marginal ROIC. Multiples rarely go up by a factor of 10. They can add juice to returns, but to get a 10 bagger you need more than a 50% uptick in a multiple. You need growth. If we’re long-term investors, the ultimate source of our return will be the growth that the company generates in its business over a long period of time. Multiple expansion is just gravy on top.

 

 

[heth247]

What kind of logic is this? 10 baggers have mostly occured in tech and will continue to mostly occur in tech. 10 baggers are almost NEVER a result of multiple expansion and almost always a result of real economic growth (rev, eps, fcf). So no, OBE is not likely to be a 10 bagger. Nor is any other company that doesn't have massive reinvestment opportunities in high margin, high CROIC projects at scale. Energy does not offer massive reinvestment opportunities at near infinite returns on capital over long periods of time and never will. It can offer high jackpot wins in a short period of time, but when that happens the market attracts drilling and margins and prices get smoked. This is a commodity business. You think OBE will ramp revs by a factor of 5-10? You think any energy company will be a 10 bagger given the ease of entry, and ease of locking in economics over frack well life-cycles? If so, you need a damn good reason why that would be true.

 

If you want 10 baggers focus on things that scale up with high ROE, high margins, and high marginal ROIC. Multiples rarely go up by a factor of 10. They can add juice to returns, but to get a 10 bagger you need more than a 50% uptick in a multiple. You need growth. If we’re long-term investors, the ultimate source of our return will be the growth that the company generates in its business over a long period of time. Multiple expansion is just gravy on top.

 

My point is that OBE does not have to ramp rev 5-10X to be a 10-bagger. This one is leveraged, and current multiple compression has been too extreme due to market sentiment. If WTI can get to $65 and stays there and with narrow Canadian differentials, OBE could easily generate $100M+ FCF even with production flat. Then, we could have a 10-bagger if multiples just expand back to normal. Of course, if your long term oil view is WTI will stay at $55 or below due to such things like shale and EV, then I agree, it will be a zombie. You may argue that my assumption (WTI at $65) is flawed, but I don't see why my logic was flawed.

 

 

 

[Liberty]

Interesting factoid about energy investing in the past decade:

 

"There have been 42 10-baggers in the S&P 1500 this decade while 1 out of every 8 stocks in the S&P 1500 Energy sector is down 90%+ over the last decade."

 

Via

 

Doesn't this suggest that we are more likely to find 10-baggers in energy over the next decade?

 

WTI is above $60, bad hedges is gone. OBE can make plenty FCF (relative to its current market cap) and deleverage if WTI stabilize at $60. Oil does not even have to go to $70 to make OBE a 10-bagger from current price level. Is there any reason not to get in now, other than this is a hated stock?

 

No. Not all sectors are created equal. The average ROICs in energy and mining and other commodities are pretty low, and nothing says that the normal is up -- maybe the previous highs were abnormal and now we're hovering around more normal levels.

[heth247]

No. Not all sectors are created equal. The average ROICs in energy and mining and other commodities are pretty low, and nothing says that the normal is up -- maybe the previous highs were abnormal and now we're hovering around more normal levels.

 

Yeah, that is the critical question, is oil in the $50 range the new norm? I guess to keep oil price capped in this range, US shale (particularly the Permian) has to keep growing. Can they keep up with their treadmill at $50 WTI without subsidizing from investors? 

[bizaro86]

Interesting factoid about energy investing in the past decade:

 

"There have been 42 10-baggers in the S&P 1500 this decade while 1 out of every 8 stocks in the S&P 1500 Energy sector is down 90%+ over the last decade."

 

Via

 

Doesn't this suggest that we are more likely to find 10-baggers in energy over the next decade?

 

WTI is above $60, bad hedges is gone. OBE can make plenty FCF (relative to its current market cap) and deleverage if WTI stabilize at $60. Oil does not even have to go to $70 to make OBE a 10-bagger from current price level. Is there any reason not to get in now, other than this is a hated stock?

 

What kind of logic is this? 10 baggers have mostly occured in tech and will continue to mostly occur in tech. 10 baggers are almost NEVER a result of multiple expansion and almost always a result of real economic growth (rev, eps, fcf). So no, OBE is not likely to be a 10 bagger. Nor is any other company that doesn't have massive reinvestment opportunities in high margin, high ROIC projects at scale. Energy does not offer massive reinvestment opportunities at near infinite returns on capital over long periods of time and never will. It can offer high jackpot wins in a short period of time, but when that happens the market attracts drilling and margins and prices get smoked. This is a commodity business. You think OBE will ramp revs by a factor of 5-10? You think any energy company will be a 10 bagger given the ease of entry, and ease of locking in economics over frack well life-cycles? If so, you need a damn good reason why that would be true.

 

If you want 10 baggers focus on things that scale up with high ROE, high margins, and high marginal ROIC. Multiples rarely go up by a factor of 10. They can add juice to returns, but to get a 10 bagger you need more than a 50% uptick in a multiple. You need growth. If we’re long-term investors, the ultimate source of our return will be the growth that the company generates in its business over a long period of time. Multiple expansion is just gravy on top.

 

I think the path to a 10 bagger in energy probably involves buying subscale competitors at low prices (plenty of those around now) and cutting costs. CNQ is an example of a company that has used accretive acquisitions and capital discipline to generate great returns for many years.