CPE analysis..
Note: 1 million cubic feet of natural gas is equal to 1.03 billion British Thermal Units. Natural gas futures trade in units of million BTU's.
Anyway.. if what they say on their site is true:
Medusa: 40k oil, 41M cf gas, 15% equity
Medusa(CPE): 6k oil, 6.15M cf gas/day
Habanero: 22.5k oil, 70M cf gas, 11% equity
Habanero(CPE): 2.475k oil, 7.7M cf gas/day
Add that up, you get:
8475bb oil, 13.85M cf gas/day
13.85M cf gas = 14265.5M btu
Futures: $30/oil, $5/gas
Cash/day: 8475bb oil * 30 = $254250/day
14265.5M btu * 5 = $71327/day
Total: $325577/day
Total revenues over 91 day quarter: $29.6M
Total revenues over year: $118.5M
Sensitivity:
$20 oil, $3 gas = $77.5M/year
$10 oil, $3 gas = $57.0M/year (I'll buy an SUV then)
Assume 20% is corrupted away, and oil is $10, gas is $3, you get $45.6M net increase in marginal revenues a year at zero marginal cost, but with capital expenses (let's say $5M/quarter for the rest of time). The rest of their revenue stream would be shot, however. (most of it assumes $22 oil and $3 gas).
Plug in $30 oil, and $5 gas, and a 20% corruption ratio, and $5M/quarter with full depreciated expenes, and we're looking at a company with $150M revenues, and $75M expenses (including interest) which gives about $3.64 EPS, and about $5.35/share cash after taxes, which suffice to say, is more than what the stock is trading at now. This is for year 2004.
The reason why the stock is trading so low is probably due to the debt: Most of it matures in the middle of 2004 ($127M). I don't think they'll have enough time to generate enough cash to pay it off. The other chunk ($95M) matures in 2005. Finally, this company is rather sensitive to the price of oil and gas. They should probably hedge at around 27-28 bucks if they can, and I know they've got half their 2003 production of gas hedged between 3 and 5 bucks (can't recall the exact numbers, it's in the 10-Q). If they can hedge their gas at 5 bucks, that would be rather nice.
The thesis here would be if they (or rather Murphy Oil) could develop those two properties, and have it proven that they could be mined at the rates they say it can, and then the equity should rise in price, and subsequently they'd be able to do a debt-for-stock deal or otherwise get the terms extended.. they *should* be able to swing that. If they can, after the dilution, the stock should be worth 15-20 bucks a piece, which is considerably more than what they're trading at. But it's what the market actually valued them a couple years ago, so I know my valuation metrics aren't completely out to lunch.
The conclusion here is that CPE is probably an excellent speculative buy if you think oil will stay above 20 bucks a pop, and gas above 4 bucks a pop. There is execution risk, but I think they had their one screwup last December when their Boomslang discovery fell through.
Couple caveats: My assumptions could be wrong (I'm not an energy expert), and this is assuming that those two discoveries can actually be mined when they say it can. Also, I constructed this without looking at their full year 2003 guidance press release. |
