Blood in the Streets: KWK Director get margin call...
Not a good week in shaleville for Nat Gas Exec's...
reuters.com
Quicksilver director sells shares to meet margin calls.
Oct 15 (Reuters) - Exploration and production company Quicksilver Energy Inc (KWK.N: Quote, Profile, Research, Stock Buzz) director Steven Morris sold more than a third of his stockholding in the company to meet margin calls, according to a regulatory filing dated Oct. 14.
Morris sold 375,264 shares that fetched him about $4.2 million, Quicksilver's filing with the U.S. Securities and Exchange Commission revealed.
Shares of the Fort Worth, Texas-based company were down 12.06 percent at $9.55 in midday trade on the New York Stock Exchange.
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I think this now qualifies for "blood in the streets" given
McClendon, Simpson, and now a Director from KWK getting
margin called.
This is opportunity people... seize it!
Here's the transcript of their latest earnings call
from August:
seekingalpha.com
re: Hedges...
"With respect to commodity prices during the third quarter, you should note that we have an average of approximately 157 million a day of natural gas hedged with collars and swaps. The collars have a weighted average floor of about $8.22 per Mmbtu and a weighted average ceiling of about $10.33 per Mmbtu. And these hedges cover approximately 78% of our expected gas production."
re: Cash flow per share valuation...
"During the second quarter, the company generated approximately $135 million of cash flow from operations before working capital changes as compared to $112 million in the first quarter, a 21% increase in cash flow."
$135b x 4 = $540b cfps for the year. Obviously nat gas
prices are down since Q2, but with 78% hedged...
KWK is selling for approx 3 x cash flow.
Given their assets, production growth, and reserve life,
... this is an incredible VALUE.
With the forced liquidation selling we are seeing with
funds, and even company CEO's... there are finally some
incredible values in the oilpatch once again.
Hard to imagine that longterm, you can get hurt,
averaging in sub $10 on this one.
Read the transcript on KWK and do your own DD,
and "average in" as forced selling and liquidation
environments cancel out both the technicals and the
fundamentals.
SOTB
PS: From Barrons...
BARRON's
Fuel for Takeovers
By DIMITRA DEFOTIS
Small oil-and-gas drillers that operate in shale regions look like tempting targets for reserve-hungry majors.
LIKE THE REST OF THE ENERGY majors, ExxonMobil is scouring the globe for oil and natural gas. But maybe it should get busier in its own backyard. Its offices in Texas are surrounded by natural-gas supplies, trapped in local shale. And the booming U.S. shale fields are among the most promising sources of energy.
Exploiting these fields, which dot the map from Texas to Pennsylvania and the Dakotas, is expensive. Wells are drilled horizontally into the shale -- thinly layered rock -- and then water is pumped in to flush out the gas. But now the process, called fracking, has become economical, because natural gas commands a price almost triple its level two decades ago. Even after a big drop this summer, gas fetches about $8 per million British thermal units. And environmental cheerleaders abound for the clean-burning fuel.
Conventional vertical drilling is sufficient to extract natural gas in many places -- but more advanced techniques are necessary in shale regions.
BP (ticker: BP) is already tapping the trend. In July, it said that it would pay Chesapeake Energy (CHK) $1.75 billion for land in Oklahoma's Woodford Shale.
YET THE BEATEN-DOWN SHARES of smaller U.S. gas and oil exploration-and-production outfits, including St. Mary Land & Exploration (SM) and Quicksilver Resources (KWK), don't reflect the value of these companies' shale assets. The fear is that an oversupply of natural gas could develop, pushing prices below $6 -- a rough threshold for shale-gas profitability.
But electricity producers' hefty appetite for natural gas should keep demand strong. And for the small E&Ps that can't invest enough in fracking, a cash-rich buyer may offer the best means of monetizing land values. The number of U.S. energy deals looks to be on the rise, with a second-quarter rebound, to 37, according to John S. Herold research.
Integrated oil companies with little debt are "licking their lips at the prospect of picking up cheap bargains," writes Neil McMahon, an analyst at Bernstein Research. A big catalyst, he asserts, will be expected rule changes by the Securities and Exchange Commission that would allow companies to book unproved reserves, increasing the appeal of acquiring shale owners or their assets. The changes are likely to take effect late this year.
Table: Tempting TargetsSmaller U.S. explorers also could be buyers. XTO Energy (XTO) has recently gobbled up roughly $5 billion in shale assets. In addition, investors in Asia and the Middle East are raring to buy U.S. shale assets for their strong rates of return, says Ray Perryman, president of the Perryman Group, a Waco, Texas, economic-research firm that advises small energy companies.
St. Mary could become a target of a large energy outfit, says Will Nasgovitz, whose Heartland Select Value Fund owns the stock. Applying recent transaction prices to St. Mary's existing assets, and assuming $80 crude (it's near $115 a barrel) and $8 natural-gas prices, he contends that the stock is worth 75, nearly twice its current price of 43.
Nasgovitz estimates that St. Mary's acres in the Haynesville region, where Texas meets Arkansas and Louisiana, would bring $16 a share, based on recent purchases by Chesapeake and Plains Exploration and Production (PXP). Add another $12 a share for Woodford acres in Oklahoma and $12 for Bakken land in Montana, and you're at $40, but "these plays account for a fraction of their total production," says Nasgovitz. "The assets are worth more, if they sell."
Dimitra DeFotis says small oil-and-gas drillers that operate in shale regions like tempting targets for reserve-hungry majors. Offerings for St. Mary? (Aug. 29)
Shares of Denver-based St. Mary are about a third below their 52-week high. This year, the company expects production growth of roughly 12%. And the stock looks cheap. St. Mary's enterprise value (debt plus equity) is 4.9 times earnings before interest, taxes, depreciation and amortization -- a measure of cash flow -- while other shale plays trade at a median closer to seven times Ebitda, according to Triple Double Advisors research.
Quicksilver Resources, based in Fort Worth, gets 72% of its gas from the Texas Barnett shale region. Any merger would have to pass muster with the Darden family, which controls a sizable number of shares.
What might motivate them? Perhaps the debt burden from recent acquisitions.
Shares of Quicksilver (which also has a master limited partnership) have been hurt by the decline in natural-gas prices; they're now more than 40% below their 52-week high. While the shares are relatively pricey, with an enterprise value-to-Ebitda multiple of 12.7, analysts expect earnings to jump 41% in 2009, according to Thomson Reuters.
Citing "phenomenal momentum in the Barnett," Jeffries & Co. recently bumped up its 12-month price target on Quicksilver to 56, versus a recent 26. The stock now trades near the proved value of its reserves, based on $75 oil and $8 natural gas. And recent acquisitions may help boost those reserves by 76%, Jeffries estimates.
The Bottom Line:
As political and other barriers to amassing energy reserves grow around the globe over the next few years, mergers and takeovers will boost small drillers' shares, some by 100%With prospects like this, the smaller oil-and-gas drillers look like tempting targets for reserve-hungry majors. Long-term investors who put some money into horizontal drillers now should eventually see a nice vertical move by these companies' stocks. |
