Wrap – Week End 02/01/08

This week's table is pretty self explanatory. No big move in rigs, a rebuild in the gas speculator short position, the largest withdrawal in history from gas storage which was met with , "ok, so now what" style selling and a predicted rally in Capesize rates (Panamax to follow) in advance of Chinese New Year Feb 8. We had a lot of fun trading the drybulks last week and the coming week promises to be very interesting as its time for the large cap E&P group to start chalking up some big numbers. Service is starting to rise from the ashes as well and other modes of transportation (rails) are getting our interest while I give the stiff arm to the refining group (still think its a little early to get back long). So this weekend its subscriber request weekend.

Subscriber request weekend.

EVEP: MLP focused on production and distribution growth through low cost acquisitions

• Solid, experienced management,

• Low cost acquisition of producing assets that themselves are low cost to exploit and operate. Their all-in F&D is about $1.80/Mcfe which is very low.

• Reserve life is very long at 17 years so you have stability and they seem to be able to keep acquiring similar assets so the distribution should continue to grow unless gas prices (its about 77% ng) just fall out of bed which I don’t expect.

• Its got an interesting JV with APA in east Texas which could give you a little upside kick that you don’t normal see in an MLP.

• So far nice history of distribution growth here…look likely to continue. Current yield 8.5%.

 

OEXFF - I don’t trade the pinks.

That being said they seem to be fairly sophisticated for some little guys having drilled some nice wells for low $ last year.

They’re little but growing fast:

• They set a production target earlier in the year for an exit rate which they made…like to see people keep their targets…sets up nice growth for 2008 as well.
• They are in fact looking for 30% YoY growth.
• The parts of Alberta they are in are good hunting grounds. As in the old adage “drill where there’s oil” so they’re not big game hunter wildcat types.
• I don’t know management but the style of the PR for the year end wrap up is what you want to see, professional, not hypey.
• They’ve put on some nice, albeit small to their production levels hedges.
• Its 3/4s gas, 1/4 oil which right now in Canada is probably a bit gassy for what you’d want given prices but your looking long term, right?, so that’s ok
• Their Cash flow target for this year is $0.85 and looking at their income statement and plans that looks doable so with the stock at 2.85 your looking at a 3.4x forward CFPS trader with a 30% 1 year growth rate on the top line.
• The one thing I see holding them back is reserves which they running through pretty quickly (reserve life of 4 years) but it looks like they are doing what’s needed to get that to creep up by drilling in repeatable plays.
• Also, their debt is a touch high.
  From an operations standpoint, LOE is high in the last quarter but their may be an explanation for that.
• If you’ve got some research there I’d be happy to take a look, all in all not bad…probably won’t see it zoom but they’re easily growing EBITDA and making their debt payments … probably not a bad long term hold. Be happy to answer any questions.

 

MVO - Jan 2007 IPO - Trust format, like a REIT but for oil and gas, 80% payout, originally formed from properties purchased from OXY in Kansas and Colorado.

Current Yield: 11.5%

The Fourth Quarter Distribution Model Looked Like This

Couple of interesting things this tells you:

1) its a stripper well operation or in other words the wells are extremely low productivity wells dredging up on average less than 3 barrels of oil per day per well. These kind of wells do fine when oil prices are high but require constant upkeep. They produce negligible amounts of gas and NGLs so oil price will determine the direction of the stock.

2) they're hedged and it hurt them. They recieved $60.72 per BOE (again, not gas dragging the realizations lower). WTI average $90.58 in the 4Q and the regional differential would not account for this large of a discount.

Taking a look at the 3Q realizations you can see that they did just as well before oil jumped up last Fall.

Near Term 1Q08 will be lower due to:

• production curtailment (unquantified) that occurred in western Kansas due to ice storms in January 2008, and
• they're going to take a hit on hedging this quarter.
• These are both one time events but have take about 15% out of the stock since early January (could be due a pop).

In a nutshell: after 1Q the hedge situation looks a little more agreeable and in fact First Call has the distribution essentially flat from 2007 to 2008 in the mid $2.50s per share but then jumping to $3.35 in 2009. I think iNet's unlikely this will stay this low if the 12 month oil strip is within $10 per barrel of being correct.