PeeGoo is selling at bankrupt levels???
Opportunity???
Why will PeeGoo survive???
HISTORY:
First the history of how this mess happened. The seismic sector historically went through the same up and down cycles the other service companies went through. Two down cycles back, someone got the bright idea that when the down cycle starts, they would just keep on working and pay for the seismic themselves by borrowing money. This way when the next up cycle started, they will have plenty of seismic to sell.
Seismic then became a growth sector with no down turns, little PeeGoo's stock climbed all they way to $40.00 per share.
The problem was the more they shot, the more they booked as profits and no one wanted earnings to decline so they kept shooting and borrowing money.
The result has been a glut of seismic for the last five years which has been sold at reduced margins for the sector to just survive.
WHERE WE ARE TODAY:
Today, most of the glut has been worked off with the exception of domestic land seismic (SEI's problem)
Margins started to improve in 2000 with larger improvements in 2001 (24%) and 2002 (43%) is a drastic improvement over 2001.
PeeGoo's cash flow in 1998 to 2002 (annualized)
$408 $223 $231 $286 $408
PeeGoo's net cap-x from 1998 to 2002 (annualized)
$910 $1,000 $230 $295 $400
As you can see, 1998 and 1999 were still the tail end of the glut years. Over the last five years, PeeGoo spent $2.8 billion dollars to only get back to where the cash flow was in 1998.
WHERE ARE WE HEADED:
Once the glut is gone and the exploration sector is forced to switch from exploitation to exploration (happening now), the margins will get back to historical levels. PeeGoo invested over 2.8 billion with nothing to show for it to date.
WHY WILL PeeGoo SURVIVE?:
The rating agencies are projecting $1 billion in cash flow in 2003. Let's look at the worst case.
Case 1, no improvement over 2002.
Cash flow $400
G & A savings 50
Atlantis sale 200
Conoco merger fee 50
Banff improvement 0
Total $700
Bonds due 11/03 250
Lease payments 88
PFD redemptions 46
Bank debt(optional) 175
Total 559
Net cash flow available for cap-x $141
Middle case: 10% improvement in cash flow over 2002, CF improved 24% over 00, and 43% over 01. PeeGoo recoups 25MM of the 40MM spent on Atlantis, G&A saving upper end at 75MM, Conoco merger fees 80MM and improved contract on the Banff.
Cash flow $440
G & A savings 75
Atlantis sale 225
Conoco merger fee 80
Banff improvement 20
Total $840
Bonds due 11/03 250
Lease payments 88
PFD redemptions 46
Bank debt(optional) 175
Total 559
Net cash flow for cap-x $281
S & P case, cash flow for Cap-X in $441.
WHY THE BANKS WILL RENEW CREDIT LINES:
Very simple, $650MM in unsecured bank debt and $1.6 billion in unsecured bonds. In today's market, the liquidation value of PGO is negative but improving as the glut is worked off. If the banks don't renew, they will share in 29% of the liquidation value (big loss for banks)
This is why I have many many shares of PeeGoo.
If PeeGoo survives, the returns will be in the 5-10X range for the patient investor.
PeeGoo is not for the faint of heart.
Goooooooooooo PeeGoo
JMHO,
Jim
PS: Don't forget the new investor bought the stock, not the bonds. VTS was also willing to pay as much as $8 per share in stock not to many months ago. |
