Hi Eva,
I've been in Elk for a little over a year, and so am obviously underwater. There are lots of things I like about the company (and still do), but IMHO they are paying the price right now for not performing to expectations.
The gold standard is growth, and Elk didn't deliver. Considered a relatively "gassy" company, Elk saw established (proven + half probable) gas reserves decline 14.5%, from 11,905 kboe in 2000 (@10:1) to 10,175 kboe. Yes, oil reserves increased 4.5%, but overall established reserves declined 5%.
This is a brutally short-term business. Lots of times good companies get beaten up for missing estimates when they have good excuses; sometimes, however, missing is a sign of things to come. There may be a penalty for debt, too -- roughly $80 mil. on a $100 mil. line. The fact that they've got $20 mil. room is good, but IMHO $80 mil. is high for a company this size. Look at URC (which Kerm mentioned today), who are doing almost exactly the same production (again @10:1) on under $30 mil. debt (before last month's acquisition). The market tends to shoot first and ask questions later.
I haven't spoken to the company yet this year, so I don't have any insight as to their spin on things. I take some comfort in their NAV 15%, which at $6 suggests that the market is overdone.
Nevertheless, I've learned (at considerable cost) that the market is often right. If you're thinking of buying, considerable DD is in order.
JMO, but hopefully some food for thought. |
