My response to Johnny Q.:
Johnny Q.,
Re: PANA, thanks kindly for the lengthy and thoughtful response. I totally disagree with everything you said, but your comments were very helpful in helping me to understand why the stock is so undervalued at this point.
From both this and your prior posts I know you are a smart boy and thus view your comments as roughly representative of the average O&G investor. When the average investor misses the mark so much as you have done with PANA, then it is easy to see why the stock is so undervalued.
I believe this misunderstanding that the market has of the PANA story will be rectified in the near future. The starting point will be when they announce the production test results of their next Price Lake well. The momentum will carry on when they announce 1Q numbers.
Now, lets get on to the numbers and break down this baby. Listed below is the production, in mmcfe of gas, by the company so far in '99:
1Q 4,972
2Q 4,634
3Q 3,972
A pretty bleak picture, to be sure. But on 9/30/99 the company finally got a new bank facility, from a bank that actually wanted to work with the company rather than just force it to just whither on the vine. So the subsequent quarters' production are now projected to be as follows:
4Q '99 4,544
1Q '00 4,700
2Q 4,900
3Q 5,000
4Q 5,380
Once the market sees this kind of a track record it will bid the stock price back up.
Most of the loss the company will be reporting tommorrow will be a non-cash writedown of their O&G properties -- of no relevance to the future. They also will be reporting an SEC PV10 value of proved reserves (calculated after the above writedown of course) which results in an adjusted breakup value of about $3/share. This is what is relevant to the future of PANA.
The amount of hedging the company is doing at this time is minimal. The 218 mmbtu of gas a day hedged is about 0.7% of the company?s gas production. The 232 bopd hedged is about 8% of the company's oil production. These hedges have an insignificant impact to the PANA financial picture in ?00.
I?ve been told by the company CFO that they have not entered into any new hedges. They have entered into some ?floor? contracts, where they are guaranteed to receive a minimum amount for their production (I suspect at the request of the bank), but that's it.
Given that they are not now hedging, the hedging losses they took in '99 are not relevant to determining the current value of the company -- they are a sunk cost and are non-recurring.
PANA?s bond rating got raised in November and I believe they have a good shot to get it raised once more come May, after they announce 1Q numbers. Their current bank stepped up to the plate and lent them $25 M at their darkest moment --- there is little chance that the bank will pull the plug at this point, now that commodity prices have appreciated dramatically and the company's production is back on the upswing.
I?m very bullish on PANA at this point. If this Price Lake well tests out at, say, 10 mmcfe/day or more, I believe the stock will pop to $1.25 easily, maybe more. At that price the company will have a market cap. > $25 M and we can start to look for some analyst coverage on this company.
The company has projected that it will generate _earnings of just south of $1 M this year --- I believe this is quite conservative |
