Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Paul Senior who wrote (45649)	11/23/2011 6:48:01 PM
From: E_K_S	Read Replies (1) \| Respond to of 78525

Thank's for reminding me about Enterprise Value which includes all the outstanding debt. For MHR that's $1.97/share roughly $257M of debt. I feel that counting their NG (especially now that their lifting costs are much lower) is much more favorable to MHR's value because their Midstream operation helps them monetize this asset. This is true for MHR more so than for several of the other NG E&P companies that do not have a midstream business or that have already sold that business like GMXR. Therefore, I mis-spoke that 8,500 BOEPD is worth $4.25/share but rather $4.25/share less $1.97/share debt or about $2.28/share. At the end of 2011 they produced 50% Oil and 50% NG (pg 8 of company 11/2011 presentation: magnumhunterresources.com ). I will count their NG equivalent in my BOEPD valuation because their Midstream Operation does in fact monetize the asset but I could be wrong here. Finally, the value of their Midstream business can be valued between $1.20/share (this is what they have invested already $125M and why they have the $257M in debt) and $3.80/share ( or $475M is what the CEO says it should be worth by Q2 2012 which is probably too high. Clownbuck stated earlier that this figure probably does not include the additional capital necessary to complete the phase 2 build out). A conservative analysis of value for MHR might have it worth $2.28/share for Boepd and $1.20/share for the Midstream business or about $3.48/share. The thing that continues to intrigued me with MHR is that their Midstream business makes their NG assets worth much more. Not one of my other small E&P companies have such a combined operation (I believe GST has already entered into a JV with a MLP partner for all of their NG gathering business and it's much smaller than what MHR has already going in Utica). I would say I may be off by no more than 15% in my MHR valuation. My back of the envelope Boepd valuation counts their NG production (which is 50% of my valuation) as a very valuable component of their value. Their NG assets would be worth close to $0.00 if they had their beginning of the year "lifting costs" and no Midstream Operation to sell through to. I will stick to my $3.48/share "Value" price or about $435M. I have been wrong many times and could very well be wrong now. Trying to calculate fair value on these small E&P companies is a moving target and in the final analysis it is up to what a willing buyer is ready to pay for such an operation. I expect the next big Buyer to be ConocoPhillips (COP). They recently sold their stake in Seaway Crude Pipeline for $1.15B last week and now have a war chest of $10.5B for making acquisitions. EKS