TET - Trilogy

[yadayada]

Same kind of thing as penn west, but this thing looks safer as costs seem lower. They have 600k acres of land, 400k of which is undeveloped and valued at 300m$ (latest 2012).

 

Developed land likely worth much more (even after squeezing out their current developed reserves).

 

Iv found that in this energy crisis, Proved (90% recoverable) and developed reserves are the thing to look at. because they barely need to spend any capex to get those out of the ground. If you run out of resources to drill, then at these prices you cannot really drill a lot of new wells. So with debt you are then fucked.

 

Production is about 30k BOE/d, so about 11m barrels per year? They can easily do 15-17m.

 

Total developed proved reserves are 78m barrels. Total Probable (at least 50% recovery) developed is 25m barrels.  And total proved and probable are 140m barrels. Market cap about 450m, and debt of 700m, so EV of 1150m. So if you think that cash flow per year from these reserves is about 100m$ (after everything). At current rates they can sustain that for ~8 years. So even at extremely depressed rates, undeveloped land + squeezing half the oil out of already developed (meaning dont even have to drill the holes) you get close to a billion $ already. If you think rest of their developed land goes for twice as much, then that is another 300m$

 

So then you get 700m$ for developed O&G reserves (barring any further cost cuts or recovery) and 600m for land. Total value of 1.3 billion in a depressed enviroment.

 

And their other potential resources are absolutely huge (potentially worth 15-30 bn$ at 80-90$ oil). So upside is good enough if oil recovers.

 

Debt matures in 2017. And Clay Riddell (legend O&G investor in Canada) has been buying a lot of shares. And competent capital allocators is important with these type of stocks.

[Guest wellmont]

the proved and probable reserves are based on higher energy prices than exist today. I am not sure how great of capital allocators they are. I think most of his money was made before the fracking revolution. the family always seems to go into cyclical downturns over leveraged. he needs higher energy prices to bail out his 3 main companies. Paramount is a hodgepodge of unrelated o & g assets. for example, they own a driller. so they aren't focused. they wasted capital on property that is only going to work with really high energy prices. if energy prices go lower he could get into trouble. having said that for position sizing purposes tet is one of the better otm long term calls on energy prices that I can think of.

[yadayada]

They bought a lot of land long before the energy boom? They seem to have had first pickings.

 

And when a resource is developed that means they can just pump it out with little extra cost or capex? Often extra costs are no more then 9-12$ per barrel, and this has been relatively stable in the past 5-6 years.

 

So they will not get full cycle profitability, but they will generate enough cash to pay off debt. 

 

Good idea to make a bucket of these things, some penn west LEAPS 1%, this stock 2%, perpetual energy 1% and paramount another % or so? One of them is bound to go up 4-5x . Even if the others crash, you still get at least your money back.

[influx]

They bought a lot of land long before the energy boom? They seem to have had first pickings.

 

And when a resource is developed that means they can just pump it out with little extra cost or capex? Often extra costs are no more then 9-12$ per barrel, and this has been relatively stable in the past 5-6 years.

 

So they will not get full cycle profitability, but they will generate enough cash to pay off debt. 

 

Good idea to make a bucket of these things, some penn west LEAPS 1%, this stock 2%, perpetual energy 1% and paramount another % or so? One of them is bound to go up 4-5x . Even if the others crash, you still get at least your money back.

 

I've been looking at this one for few months now too.

There's been some insider buying, true, a the most notable is the Riddell purchase of $1.2 million

 

What is their staying power according to you?

 

Some pros:

1. They cut the dividend immediately, in December I think, unlike PWE

2. Insider buying. I dont see why he would buy unless he thinks this is really undervalued

3. Big insider ownership

4. There is an ongoing/active NCIB

 

Some cons:

1. Big insider ownership :) you never know this control which way they are going to move. BUT, I think his reputation is on the line to do something stupid? I've read some stuff about him and his family, but didnt go deep with D&D

2. Debt?

3. Not sure about their staying power if oil remains low for another 1-2 year, BUT given the pros points 1,2 and 4, I think they have it.

 

P.S. Kyle Bass thinks oil must come back rather sooner than later. Sooner being 1-2 years at most because rigs are way down and therefore supply will be down