BXE - Bellatrix Explorations

[Packer16]

I agree with much of what is being stated here but I think it is too early to state that the assets have questionable value due to debt pricing.  This is a hated name and it shows in the price.  If the pricing is the same in 6 months then you will be correct.  I think for some of these capital intensive names management is very important as they are constantly investing for future cash flows & clearly management has a credability issue.  From what I have seen in the same situation I am not sure I would not do the same thing, do an equity raise first then complete the asset sales to finance reestablishment of growth.  They also were caught the great bank skeedadle from O & G.  But given the volatility here diversification is a must.

 

Packer

[alertmeipp]

On redemption yes, but if BXE does trade for $3 in the future the converts will trade really close to the conversion price.  So you can just sell them on the market for whatever they're worth without waiting for 2019. 

 

Converts cost the higher of the coupon or the equity conversion.  If you think 6.75% is a good deal, it's because you think the equity will not get over the conversion price.  In which case the equity is a bad purchase.  But if you think the equity is indeed undervalued, this is way more expense than higher coupon nonconvertible debt.

 

True enough. The senior was trading 50 cents dollar. I guess the market does see upside on equity.

[Picasso]

Senior's went up from 50 to 85 because they're sucking the value out from equity issuance/convertibles and asset sales.  They've become better protected at the expense of equity holders.  And even those are still yielding 14%. 

[alertmeipp]

where do u see senior trading up to 85?

I still see 50s.

[Picasso]

See attached

[Packer16]

How much volume where you able to find on the seniors as last time I checked BB the volume and trading was sporadic and pretty old.

 

Packer

[Picasso]

Several million traded today at 85 or so. The battery died on my mobile B unit so I can't screen cap it from the terminal until tomorrow.

[Packer16]

Thx

[Simple Investor]

The senior trading at 85 a good or a bad thing?  At 85 doesn't the market think bankruptcy risk is less?

 

 

[SharperDingaan]

The basket approach is a very good idea - but you might also want to think 'cross silo', and not just vertically within the 'producer silo'. Many would also be considering the servicing industry, in recognition that their performance is derived from how well the 'producer silo' does. Staggered investments across an extended timeframe ;).

 

SD 

 

 

Take a look at the commentary from this Seeking Alpha transcript:

 

http://seekingalpha.com/article/3998352-bellatrix-explorations-bxe-ceo-ray-smith-q2-2016-results-earnings-call-transcript

 

I don't think even Apple transcripts get that much commentary on Seeking Alpha.  It's just bag holder city.  It's depressing to read.  Other comments are quoting god as their last hope, with investors buying down as much as they can "to get their basis down."  Pure madness.

 

That is a lot of comments.  I read the transcript, but didn't follow all of the comments.

 

Appreciate your comments in this thread.  Always interested in opinions on my investments.

 

BXE started as a relatively small portion of my portfolio and has gotten smaller.  Maybe just over 1% at cost and a little under 1% now.  I think of BXE as part of a basket of O&G companies.

 

Briefly, I think oil will eventually return to the $60 range.  Too much supply taken out at prices under that - deepwater, oil sands, etc.  Timing on that is difficult given sunk costs and the like.  That is my basic analysis, if that is wrong, everything that follows will be as well.

 

If I am reasonably confident in the oil price, the question becomes what companies to invest in.  Oil majors should survive, but everyone knows that.  Throughout the downturn, I am not sure there has ever been a particularly attractive price for Exxon assuming $60 oil.  Other companies have been priced low, but really need $80 oil to survive.  Some of these have already gone bankrupt.  I am much less confident we get to $80.  So, what I was looking for was O&G companies: (1) priced for distress; (2) that will make good money at $60 WTI; and (3) will survive until we get there.

 

Given the above, I invested in a basket of BTE, PGH, PWE and BXE.  They all have (or had) warts, but they were slightly different.  Simplified:  PWE had a big debt problem, but good assets.  BTE has a large debt load, but long maturities.  PGH is well hedged for this year.  BXE has a different profile due to its natural gas weighting.  I wanted to diversify my company specific risk somewhat.

 

Post transactions, I think the debt problem for PWE is solved, they are the least risky and I have made it my largest in this basket.  PGH and BTE have performed very well for me since I bought them, but I don't think either are necessarily out of the woods.

 

Regarding BXE, I still think they will survive, asset prices will turn more in their favor and it is worth more than its current price.  This week, the price has changed a lot, but I don't think the situation has gotten much worse.  To your points, I didn't invest because of Orange or Baupost, though I didn't like Baupost selling out.  Your point is well taken on the dilution - perhaps I should have sold out immediately at either.  I will have to consider more and perhaps be more specific when buying in.  Dilution that solves the debt problem is not necessarily bad.  The problem here, is it has solved it half-way.

 

I still think that BXE serves a purpose in the basket and my portfolio.  I also probably have a bias against selling out now that there has been the additional price drop this week for no additional reason (in my mind).

 

If we get $60 oil and PWE does well, I will do well on these trades even without BXE.  That being said, I am certainly not interested in losing my remaining investment in BXE.

 

Hope that adds something to the conversation.  I would like to see the board back away from the political bent and get back to investment discussions.

[Picasso]

The senior trading at 85 a good or a bad thing?  At 85 doesn't the market think bankruptcy risk is less?

 

Certainly better than 50.  But I think that's an improvement for bond holders coming from the the asset sales and convert debt issuance.  All things that are taking away from the equity holders.  The bonds are like sponges soaking up the easier value to get to.

 

Anyway, it's easy to argue that there's a lot of value here if AECO pricing improves over the next few years.  I've been known to give investors crap near market turning points (see OUTR or CHK) so maybe this is another of those times.  I think it's just the thesis drift/cultlike concentration that gets me riled up.

[tede02]

Take a look at the commentary from this Seeking Alpha transcript:

 

http://seekingalpha.com/article/3998352-bellatrix-explorations-bxe-ceo-ray-smith-q2-2016-results-earnings-call-transcript

 

I don't think even Apple transcripts get that much commentary on Seeking Alpha.  It's just bag holder city.  It's depressing to read.  Other comments are quoting god as their last hope, with investors buying down as much as they can "to get their basis down."  Pure madness.

 

It must be bad when people start asking for divine intervention.  LOL.  Picasso is exactly right, I would never have bought CHK or BXE had it not been for Icahn and Baupost respectively.  The only plus about owning these names is I knew virtually nothing about E&P previously.  I've learned a lot.  Looking back, Stevie's approach of owning a basket of names seems like it would have been a more prudent approach to dabble in this space. 

 

As much as the asset sales and dilution disappoint me, the silver lining is it buys the company more time for commodity prices to improve  and hopefully get the company to the other side.  Wish I had something more intelligent to add. 

[Simple Investor]

when you guys say concentration what is the percentage that an investment actually becomes concentrated?  5%  10%. 

[Ballinvarosig Investors]

Incidentally, Baupost sold out in the last quarter.

 

http://www.dataroma.com/m/m_activity.php?m=BAUPOST&typ=a

[dyow]

This is about .0025% of my portfolio, which is peanuts thankfully for a well to do value investor gentlemen like myself.  Sorry to rub it in for anyone that made a concentrated bet.  If baupost never owned i would have never looked at this.         

     

There was a poster earlier in the thread that mentioned mgmt was shit.  They were shut down/ignored but were 100% right.  Capital allocation good mgmt is paramount in the commodity business.  There were red flags. 

 

Also i saw no insider buying as the stock tanked, another red flag, the stock is a buck CAD and these guys ain't buying.  A kit kat costs 1.69 before tax. 

 

kit kat > bellatrix exploration.

 

[dyow]

^ if i read the post above and it wasn't me writing it i would say the stock may be close to a bottom.

 

 

 

[Picasso]

This is about .0025% of my portfolio, which is peanuts thankfully for a well to do value investor gentlemen like myself.  Sorry to rub it in for anyone that made a concentrated bet.  If baupost never owned i would have never looked at this.         

     

There was a poster earlier in the thread that mentioned mgmt was shit.  They were shut down/ignored but were 100% right.  Capital allocation good mgmt is paramount in the commodity business.  There were red flags. 

 

Also i saw no insider buying as the stock tanked, another red flag, the stock is a buck CAD and these guys ain't buying.  A kit kat costs 1.69 before tax. 

 

kit kat > bellatrix exploration.

 

I like the cut of the your jib.

[dyow]

This is about .0025% of my portfolio, which is peanuts thankfully for a well to do value investor gentlemen like myself.  Sorry to rub it in for anyone that made a concentrated bet.  If baupost never owned i would have never looked at this.         

     

There was a poster earlier in the thread that mentioned mgmt was shit.  They were shut down/ignored but were 100% right.  Capital allocation good mgmt is paramount in the commodity business.  There were red flags. 

 

Also i saw no insider buying as the stock tanked, another red flag, the stock is a buck CAD and these guys ain't buying.  A kit kat costs 1.69 before tax. 

 

kit kat > bellatrix exploration.

 

I like the cut of the your jib.

 

People with good cuts of jib recognize other people with good cuts of jib.

[Patmo]

when you guys say concentration what is the percentage that an investment actually becomes concentrated?  5%  10%.

 

People put huge portions of their worth on this kind of crap, 10% is a baby weighing compared to some people in this thing.

 

http://forum.thecontrarianinvestor.com/index.php?threads/gt-advanced-technologies-inc-gtat.69/

 

Read through this thread about GTAT, it will open your eyes as to what kind of % allocation some people with good intentions but bad judgement will do. The people that can pull off large concentration successfully are like 1 in a thousand, yet the number of people that attempt it seems reverse; 999 in a thousand.

[Picasso]

Anyone have any thoughts on AECO spot prices down at $0.92?  Seems like if they can't get improved spot pricing now, when exactly are they supposed to?

[Ballinvarosig Investors]

when you guys say concentration what is the percentage that an investment actually becomes concentrated?  5%  10%.

 

People put huge portions of their worth on this kind of crap, 10% is a baby weighing compared to some people in this thing.

 

http://forum.thecontrarianinvestor.com/index.php?threads/gt-advanced-technologies-inc-gtat.69/

 

Read through this thread about GTAT, it will open your eyes as to what kind of % allocation some people with good intentions but bad judgement will do. The people that can pull off large concentration successfully are like 1 in a thousand, yet the number of people that attempt it seems reverse; 999 in a thousand.

Wow, that thread is a car crash.

 

- People fully invested in GTAT, 100%.

- People selling stock to go long via options.

- People using retirement accounts to go long.

- People claiming market manipulation of the stock.

- People thankful for "buying the dips" - all the way down to 0.

[tede02]

Its always interesting to see how past forecasts worked out.  Attached is the energy price forecast from BXE's 2009 annual report.  AECO prices are approximately 90% below the forecast. 

Energy_price_forecasts.pdf

[Packer16]

AECO prices will go up based upon arbitrage.  Who would not want buy AECO at a huge discount to Henry Hub?  If prices stay the same then the US will import a ton until the prices equalize less transportation costs.

 

Packer

[Packer16]

IMO the questions here is when will the management discount decline?  Clearly the asset is a nice asset & as far as I can tell recent management moves are not that different than a "more" rationale team would do.  They were caught in a banker run out of O&G and now have de-risked so they can start to grow again.  For all the BXE bears, what would you have do differently in this situation with the hand management has been dealt?  To me this is the important question going forward not mistakes they have made in the past.  Given the management discount, these guys may be a take out candidate and management may lose their jobs as a result.

 

Packer

[Picasso]

Packer, speaking of acquisitions, what do you think of this comment from Blackstone? 

 

http://www.bloomberg.com/news/articles/2016-05-25/blackstone-gives-pricey-canadian-energy-and-property-thumbs-down

 

My read of their argument is that a large part of the United States is still profitable at nat gas prices that would put Bellatrix out of the money given the financial leverage.  So it's hard to get a sense for what could possibly cause AECO prices move dramatically higher to make BXE very profitable.  And the fact that AECO has now for a second time gone below $1 this year, perhaps that is a reasonable sign of that being the case?  There's possibly some disadvantaged supply and demand issues with this producer in today's nat gas market?

 

Even if the U.S. starts importing more AECO, it would price below other nat gas that it's competing with, minus transport costs.  I guess my point is that the spread differential is ridiculous, what gives a bull a reason to think that will change?  I really don't think arbitrage would change that but I could be off.

 

The last time AECO went under $1, people brushed it off.  Then they said it wouldn't go back under $1.  Well, we're here again so I'm trying to understand if it's more thesis drift or if I'm missing something bigger.