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Strategies & Market Trends : Value Investing

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To: Madharry who wrote (39479)	9/29/2010 3:33:16 PM
From: E_K_S	Read Replies (2) of 78745

Hi Madharry - Re.GMX Resources Inc. (GMXR) Upgrade by MKM Partners w/ $7.00 price target. Jefferies had a downgrade today to $4.00 from $7.00. Stock was/is a heavy short candidate. A lot of the analysis is based on what NG prices will be in the future. GMXR has sufficient hedges in place for the next two years where this is not too important. What caught my eye was what they are doing to cut costs and all the CAPEX money they plan to save by delaying some current spending. They are going with one rig that they have lease commitments for rather than two (in a drilling JV area) assigning their other lease to another partner (possibly XCO) saving $22 million over 24 months. They receive the benefit in transporting the NG from any wells at this location. They will cut their CAPEX $25 million to $175 million for 2011. All in all, they basically should save $50 million next year (or about $1.00/share) and basically still achieve their previous 28% growth targets. The stock was/is incredibly cheap. What's really interesting is that none of the so called analysts discussed these savings in their reports (at least the ones I read this AM). I posted the company's three previous press announcements that highlighted these cost savings items. Management has been involving XCO (who owns contiguous land parcels) in more of their exploratory drilling deals. They announced one JV w/ them and I expect many more especially something in their NG gathering business. My guess is that GMXR will be the main NG gather and transporter/processor for XCO production on all contiguous land parcels. It will probably be just a hand shake type deal w/ no major announcement. GMXR has a lot of spare NG gathering capacity which when sold (usually sold by multi-year contract commitments) will improve their operating profitability. Basically, things are not as bad for GMXR as the market had priced their stock last week. With today's move, my total cost basis is now around break even. That's why you buy a position over time. EKS

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