The large discount to NAV makes this stock very attractive on its face, until you dig a little deeper. Last year, I think that NAV per share was $12, so we have seen a 25% decline yoy. Yes, I know about the revisions due to gas prices, but I also know that the company invested 60mm last year with very little to show for it. Worse yet, only 15% of proved reserves are PDP, and debt exceeds PDP by a whopping 90mm. That means we have a highly leveraged company with an asset base largely comprised of PUDs, armed with a management team that has shown very little ability in converting PUDs to PDP.
Management also has a credibility problem. It touted a 5,000 exit production rate as late as August, and the Company achieved 3,500. You can blame the hurricane on it, but that would mean that the company should achieve it in 1Q. It will not. It won't be close. In fact, after blowing 70mm from 1q 2012 through the Roux Toux, the company will likely have flat production. That's shocking.
Candidly, management's forte has been touting a large discount to NAV as a reason to invest or some pie in the sky play (Long John Silver, etc.). Now, it will tout the lease blocks and finding a JV partner. Give me a break. If a well-healed JV partner existed, it would have bid on those assets itself. It was a public auction, after all. Worse yet, this company has shown little ability in converting PUDs to PDP and frankly does not have to capital to do so. So, all it has to show for the $880,000 is more PUDs - just what it needs!
It also appears that large shareholders are bailing on this stock, which is never a good sign. It does, at some point, establish a floor in the stock. But, other than that, it is hard to see it as a positive.
In short, I hear the argument about the big discount to NAV. It is attractive. But, when you figure out that it's almost all PUDs and that this company blew 60mm last year (70mm including the Roux Toux this year) and did not convert much from PUDs to PDP and missed its forecasts by a staggering degree, it's easy to see why there's an enormous discount. Finally, it may well miss last year's 1Q production numbers (you did notice that management ran away from any guidance at all). If so, look for a one handle on this stock, if it does not get there sooner.
