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Strategies & Market Trends : Value Investing

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To: Paul Senior who wrote (40872)	8/29/2011 1:05:07 PM
From: E_K_S	Read Replies (3) of 78663

Venoco, Inc. (VQ) finance.yahoo.com Venoco CEO's go-private offer values co at $770 million Mon Aug 29, 2011 9:10am EDT reuters.com BANGALORE (Reuters) - Venoco Inc's (VQ.N) chief executive and top shareholder offered to take the natural gas producer private, valuing the company at about $770 million at a time when low gas prices and higher costs are weighing on the sector. From the article:"...The proposed price of $12.50 a share by Venoco's CEO Timothy Marquez, who owns half the company's shares, is 44 percent below the stock's 52-week high of $22.46 in February. However, the proposal is a 39 percent premium to Friday's closing price. Marquez shares rose 34 percent before the bell on Monday on the New York Stock Exchange. The stock's weakness mirrors that of other companies as natural gas prices have slumped 6 percent to $3.88 per million British thermal units. Marquez's proposal comes when Venoco looks to offset low gas prices by investing heavily in the oil-rich Monterey shale formation. It spent about half its capital expenditure on the shale in its most recent quarter...." --------------------------------------------------------------------------------------------------------- You were correct in your valuation analysis but Mr. Market just did not see it the same way you or the CEO did. Stock is only getting back to the June 2011 values, still off 50% from the highs of $22.00 earlier this year. In perspective, stock is still trading at late 2009 levels. My take away is there is value in the accumulated assets the company owns. CEO shifted strategy to more oily shale plays from earlier NG ventures. That's not to say that the proven reserves they have in NG are worthless but rather they are being priced at the worst case scenario while the capital invested in the new oily shale areas are seen as producing dry holes (primarily because of the drilling moratorium in Monterey). FWIW I gave up on PVA and sold 75% of my very high priced shares and may reenter the position in 31 days. The PVA story reminds me of VQ as the company is spending new monies drilling in nw oily shale areas and have quite a few producing NG properties. Both stocks off more than 50% from earlier year highs. I think we may see more of these sold off small E&P companies get picked up buy private equity or larger developers because it is the value of their in-the-ground assets that make the acquisitions so attractive. EKS

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