Wilson-TPC Posted September 16, 2015 Share Posted September 16, 2015 Anyone else look into GXE.TO? Link to comment Share on other sites More sharing options...
influx Posted September 16, 2015 Share Posted September 16, 2015 Anyone else look into GXE.TO? Me, but not yet in full details Due to the link with Peyto founder Similar approach for monthly PRs Link to comment Share on other sites More sharing options...
Packer16 Posted September 26, 2015 Share Posted September 26, 2015 These guys have done some pretty incredible things in terms of capital efficiency (<$10k) and 100%+ RoR on incremental production at today's prices (see September report): http://www.gearenergy.com/monthly-reports Packer Link to comment Share on other sites More sharing options...
Guest notorious546 Posted September 29, 2015 Share Posted September 29, 2015 Credit line doesn't seem to have much capacity left on it. i wonder if the lending base is already tapped out? some companies leave room to increase or for a buffer for a potential cut to credit lines, while others use it all up! Link to comment Share on other sites More sharing options...
Packer16 Posted September 29, 2015 Share Posted September 29, 2015 They have $8 million as of 6/30 on $90m line and paid down the line $11m in Q2. Given that they pulled the rig in Q3, I would not be surprised if the line is paid down more in Q3. The coverage is like 22x ($66m EBITDA (1H annualized) on $3m in interest expense) and leverage is 1.2x, very modest levels. Packer Link to comment Share on other sites More sharing options...
Cardboard Posted September 29, 2015 Share Posted September 29, 2015 Gear Energy demonstrates a key risk that Penn West does not have: re-determination of the credit line size twice a year by lenders based on reserves values, etc. This is a pain because even if you meet covenants and make all payments on time, the banks can always decide to reduce their book of energy business to reduce their risk and cut your line of credit. Some players will have trouble with this, this Fall. Gear had a $130 million credit line on March 31 which was reduced to $90 million following the June 1 bank review. Next review is November 1. These guys produce heavy oil and pricing in Q3 has been brutal so netbacks will come down quite a bit. Reserve values will also head down. While I firmly believe that this is a nice find by Packer and that the risks of getting in trouble should be close to nil, flexibility is not great. As long as they stick to their core business and live within their means they will be fine and the banks will walk along. Making an opportunistic acquisition would most likely require share issuance meaning dilution or worst entering into a poorly financed stupid deal like Manitok. Therefore, it needs higher energy prices for the stock price to go up and for them to expand or like most. Cardboard Link to comment Share on other sites More sharing options...
investor-man Posted October 2, 2015 Share Posted October 2, 2015 I just finished reading everything on their website, and WOW! I can't believe I get to invest in this company at these prices! Love how the September update begins: As far as capital investment goes, Gear is probably having its best year ever. Link to comment Share on other sites More sharing options...
Cardboard Posted October 5, 2015 Share Posted October 5, 2015 I am starting to gather more information about the company and one concern of mine that has arisen is the low level of reserves at Wildmere and Maidstone or the two areas where they are focused and have close to 100% working interest. Only 6.75 years and 4.8 years respectively based on Q4 2014 production rates. Cardboard Link to comment Share on other sites More sharing options...
Wilson-TPC Posted October 5, 2015 Author Share Posted October 5, 2015 I am starting to gather more information about the company and one concern of mine that has arisen is the low level of reserves at Wildmere and Maidstone or the two areas where they are focused and have close to 100% working interest. Only 6.75 years and 4.8 years respectively based on Q4 2014 production rates. Cardboard I recommend contacting Ingram Gillmore himself for additional info on that. Email me if you want his contact info. I also would like to add you to a group of guys that I'm working with closely in analyzing the Canadian E&P space. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted October 16, 2015 Author Share Posted October 16, 2015 Surreal.... http://www.marketwired.com/press-release/-2064503.htm Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted October 17, 2015 Share Posted October 17, 2015 Some quick notes on this stock: 1- According to the 2014 AIF, Gear had 71 net natural gas wells in Saskatchewan (74 gross wells). Only 1 of those wells is producing, and that's down from the 2013 AIF numbers. So what I couldn't figure out is: a- I thought this was a heavy oil company? b- It looks like their Saskatchewan play became a disaster? The company seems to have shut in almost all of its natural gas wells. c- Their monthly letters don't say anything about shutting in natural gas wells. 2- It seems overvalued, though my estimates may be off. I'm guestimating that the company should have a mkt cap of 30M or lower. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted October 17, 2015 Author Share Posted October 17, 2015 You are using only PDP. I don't think that's a proper way of valuing the company. You don't take into account its current cash flow. Feel free to short it. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted October 17, 2015 Author Share Posted October 17, 2015 Some quick notes on this stock: 1- According to the 2014 AIF, Gear had 71 net natural gas wells in Saskatchewan (74 gross wells). Only 1 of those wells is producing, and that's down from the 2013 AIF numbers. So what I couldn't figure out is: a- I thought this was a heavy oil company? b- It looks like their Saskatchewan play became a disaster? The company seems to have shut in almost all of its natural gas wells. c- Their monthly letters don't say anything about shutting in natural gas wells. 2- It seems overvalued, though my estimates may be off. I'm guestimating that the company should have a mkt cap of 30M or lower. Ingram didn't get paid a bonus last year as they wrote off that piece of asset from their reserves. So this is answered. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted October 17, 2015 Author Share Posted October 17, 2015 This is what 2016 looks like, you tell me if it should be below 30 mil in market cap. Link to comment Share on other sites More sharing options...
alertmeipp Posted October 18, 2015 Share Posted October 18, 2015 Looks interesting $45 oil assumption - is it WCS or WTI? in CDN I assume? Thanks. Link to comment Share on other sites More sharing options...
Wilson-TPC Posted October 18, 2015 Author Share Posted October 18, 2015 Looks interesting $45 oil assumption - is it WCS or WTI? in CDN I assume? Thanks. WCS Company just came out with guidance of 10k capital efficiency. So next year looks to be 16 - 17 mil of free cash flow generated. Link to comment Share on other sites More sharing options...
mcliu Posted October 18, 2015 Share Posted October 18, 2015 What does WTI have to trade at for GXE to get $45 on their WCS? Link to comment Share on other sites More sharing options...
Wilson-TPC Posted October 18, 2015 Author Share Posted October 18, 2015 $50, WCS futures curve is pointing at C$45. Link to comment Share on other sites More sharing options...
mcliu Posted October 19, 2015 Share Posted October 19, 2015 Thanks. Another follow up, is the company achieving this type of capital efficiency because they're drilling their best wells? How repeatable are these results? Link to comment Share on other sites More sharing options...
Wilson-TPC Posted October 19, 2015 Author Share Posted October 19, 2015 Thanks. Another follow up, is the company achieving this type of capital efficiency because they're drilling their best wells? How repeatable are these results? I had this conversation with Ingram the other day, he can't say until he gives 2016 guidance, but what he did say is that his team is getting better at this. You can infer what you want from that statement. Link to comment Share on other sites More sharing options...
ItsAValueTrap Posted October 19, 2015 Share Posted October 19, 2015 This is what 2016 looks like, you tell me if it should be below 30 mil in market cap. For their producing assets, I estimate a NPV of around $99.6M with a discount rate of 8%. Total liabilities might be around $131.5M (depends on how you value the AROs). Current assets $22.8M. 131 - 22.8 = 108.2. Their land is worth something. They also have deferred tax assets (because they lost a lot of money), which are also worth something. Depending on the assumptions you use, you can get positive NPV for the company. With your assumptions + my own assumptions, I estimate that the stock should be worth around $41M. **The decline rate looks very high. If the actual decline curve shows lower decline in the future, then Gear's assets are worth more. I haven't done my homework on what their decline curve is. 2- I wouldn't assume that Gear can replace its production at very low costs. Some quick notes on this stock: 1- According to the 2014 AIF, Gear had 71 net natural gas wells in Saskatchewan (74 gross wells). Only 1 of those wells is producing, and that's down from the 2013 AIF numbers. So what I couldn't figure out is: a- I thought this was a heavy oil company? b- It looks like their Saskatchewan play became a disaster? The company seems to have shut in almost all of its natural gas wells. c- Their monthly letters don't say anything about shutting in natural gas wells. 2- It seems overvalued, though my estimates may be off. I'm guestimating that the company should have a mkt cap of 30M or lower. Ingram didn't get paid a bonus last year as they wrote off that piece of asset from their reserves. So this is answered. Well the issue is whether or not they are actually good at finding oil and gas economically. If you drill 100+ wells, and only 1 of them is still producing a few years later, you may have ****ed up bigtime. On the other hand... it's more likely that something funky is happening. They may not suck that bad. I haven't put in the work to figure out their skill. Though if they were actually good at being the low-cost operator, I would think that their retained earnings would have been positive in 2013/2014 before the collapse in oil prices. Link to comment Share on other sites More sharing options...
Packer16 Posted October 20, 2015 Share Posted October 20, 2015 Your last paragraph captures the differences in value. Valuing the PDP is a small fraction of the value of most O&G firms. In this case I have seen PDP values of around $130m with current STRIP pricing and a 10% discount rate pre-tax. However, as you point out the value is in the ability to deploy capital at high rates of return. The key metric here is capital efficiency. Gear has it in spades. Over the last 12 months they have a recent capital efficiency of $10k/fboe versus $15k historically. The IRRs at today's oil prices are very high. As an example they were able to drill a vertical well with 4 horizontal wells for the same price as one vertical well last year. If you read Gear's monthly updates you can see this. They have numerous locations to repeat this type of drilling. They also have the right incentives, which are also described in these monthly updates. Finally, the model here is based off of Peyto which has been one of the most successful O&G firms in Canada. Now Peyto is too expensive for my taste so Gear provides a similar approach but to heavy oil versus gas. What I am looking for is a smart capital allocator who will invest when it makes sense and stop when it does not, Gear stopped drilling in August (as the refinery was out for maintenance and the prices being paid for heavy crude was low) subsequently when prices rose, Gear started to drill again. The company also purchased a water truck from a bankrupt operator from which they can save a few bucks. This is the mentality of management, which I find refreshing. This is a small company so they are opportunistically selecting the best places to invest with the highest IRRs. Packer Link to comment Share on other sites More sharing options...
Cardboard Posted November 11, 2015 Share Posted November 11, 2015 So, the bank line is being reduced to $60 million from $90 million but, it is hard to tell from the press release if the banks actually forced them to raise that cash. Maybe since they had $81 million drawn on the line on June 30 : http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aGXE-2324052&symbol=GXE®ion=C I am quite shocked about this development. I don't own any share but, it was on my watch list and very surprised about this company diluting its shareholders at this time. I don't think they needed to unless again the banks forced their hand. They also forecast a decline in production for 2016 with a mid-point guidance of 5,250 boe/d from 5,800 boe/d in 2015 while spending about twice as much in capex? Cardboard Link to comment Share on other sites More sharing options...
Saj Posted November 11, 2015 Share Posted November 11, 2015 I'm shocked by it as well. Dilution is taking place at a big discount to market price as well, with insiders taking part. Could have done a rights offering to all shareholders, no? Instead looks like self-dealing. Also, the huge spend in capex is to raise production 6% 4th q over 4th q? Decline rates must be a lot higher than previously implied, or are they super conservative so that they can keep beating estimates? Link to comment Share on other sites More sharing options...
influx Posted November 11, 2015 Share Posted November 11, 2015 this seems buying low (GXE), selling high (PEY); might be just a speculation on my part; We'll see who files for this equity offering Related: http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/pey-to-peyto-exploration-development/ Link to comment Share on other sites More sharing options...
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