From Platinum's sc. 14A issued last week as "information required in proxy statement":
"So just to put it all together, it is very compelling to say you are buying assets at under the market average of $13 a barrel. You are adding in your operating cash and you're using hedge financing techniques to lock in that value.
The analogy I like to use for how to financially run a company is how commercial banks make money. A commercial bank has savings accounts that pay 1 or 2% and then they give out mortgages where they pay 5 to 6%. So that gap of 3 to 4% is a very low margin business. The way commercial banks make money is they securitize that gap by creating mortgage backed securities and hedging their interest rates.
So they take that low risk cash flow, securitize it, and feed that capital back in to ramp up the business and multiply that 4% gap many times over.
We feel that on the E&P operation side you have to be a best in class operator, but on the financial side we should be running the company kind of like a bank. On the low risk cash flowing side of the business, let's take that money off the table so that we can reinvest in high quality assets at under $15 a barrel.
So just to summarize, we are very excited about the Tandem acquisition. We feel it is the perfect platform to grow our strategy at a price that is basically under half of the discounted cash flow. We see Tandem as a fantastic acquisition. It brings with solid operations that serve as a platform to go out and buy assets that don't have operations. A lot of the real sweetheart deals out there in Midland are buying assets from your neighbors, buying $5 million deals, $10 million deals, deals you can only do once you have a substantial operation in place. And Tandem gives us that facility.
In addition there is substantial upside that is not included in the current reserve report that we're very excited about exploiting and doing the reserve engineering, so that we can come back next year to the IPAA and explain in more detail what exactly that upside is. And on the Platinum side we'll basically be using our financial techniques to monetize the piece of the cash flow that is low risk. And when you put it all together, just by using these financial techniques on the existing reserve report, we hope to lock in an IRR of about 40%, and use it as a platform to substantially grow the company. "
secfilings.nasdaq.com
PGRIW.OB below $1 looks like a "strong buy" again. IMO. |
