Sharp, CPE & EPL -- I'm gonna date myself but I am reminded of Alfred E. Newman of Mad Magazine, with a shit-eatin' grin saying "What, me worry?".
CPE has cast its lot with the Gulf deepwater, and there is not a whole hell much it can do to change that in the next few months. It is essentially broke. Yes, they have about $10 M of availability on their bank line, but they dare not touch that until Medusa is online, just in case that gets delayed any further (currently scheduled for May).
Once Medusa is online, they said they are thinking about doing some project financing of their interest in the Spar, which would get them a check for $30 M. They didn't say what they might do with that cash but to me its pretty obvious that the play would be to do something like what Energy Partners (EPL) is doing -- just go idiotic drilling out all your best, quickest-to-production prospects in the shallow Shelf, all in the space of about 4 months.
CPE is not close to getting into financing problems, so there really isn't any need for them to do anything drastically different at this time. The Boomslang project falling off the development list actually improved their liquidity since it took away a big slug of non-discretionary future expenditures. Boomslang was not scheduled to come onstream until around 11/03, so they were not counting on that cash to get them through their liquidity crunch. By 11/03, just with the other 2 deepwater projects they will have brought onstream, they will be over the hump.
Its interesting that so many folks are interested in CPE now, vs. hardly any previously when they still had Boomslang but it was a $6 stock. And hardly anyone is interested in EPL. EPL is by far my favorite position at this time, and I've resolved to buy more. It has kept charging up to new 52-week highs but hopefully it will pull back when everyone's on vacation these next few weeks.
EPL is doing some cool stuff, such as, what I will call "playing Monopoly" in putting together its plays. A lot of the GOM got sliced & diced in weird ways, and sometimes you ended up with one geologic unit being owned by several of the majors. The majors don't like to share info with each other so no one ever got a chance to put together each of the companies' data. Along comes Richard Bachman (former LL&E COO, who formed EPL in '98), and he, over time, acquires these pieces of one of these fields from each respective company, then integrates all three seismic surveys, and voila, all kinds of leads pop up that weren't showing up before. Its like buying all the same properties of one color in Monopoly -- now you can put hotels on there!
EPL has blown about $29 M drilling 14 wells this quarter. For awhile, EPL had an interest in 1 out of every 10 wells drilling in the entire GOM this quarter! Using $4 gas I estimate that they will have received this cash back in the form of new production by the end of 3Q.
This stock is currently underfollowed by analysts (I believe it has 6 following them presently) and I believe it is a prime candidate to get new analysts to follow it in the next few months. Energy stock analysts are going to be under an immense amount of pressure to come up with some new picks in the coming months, once the crowd hears of the secular changes going on in the commodity price front. Usually the companies chosen by these guys are not the tired old names, but new, fresh faces that are in a growth mode. This is EPL.
I know it is tough to buy a stock at its 52-week high, but believe me, the stock is still way undervalued. I project that, just based on wells drilled to date, using $4 gas, cash flow will more than double in '03 vs. '02, to around $3.50/share fully diluted (other than the $11 warrants, which are just barely in the money). I believe the stock has not gone up even more than it has only due to 2 facts: 1) the analysts following EPL (with the exception of Merrill Lynch last week) have not caught up with the news yet and published updates, and 2) There is a huge overhang on the stock presently because the company has $38 M worth of preferred stock that is convertible at $8.54.
When everyone comes back from the break in January and the analysts put out updates and increase targets, a flood of buying will come in and chew through that overhang. I believe this stock has enormous potential and could easily double over the next year.
Most folks in this joint seem to subscribe to the "buy low sell high" philosophy, and I guess I'm saying why not consider "buy high & sell higher" sometimes. |
