full-time investing; total portfolio up over 130% in 2009; but 2010 sucks!
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BHRT: Heck no; warm weather here but I still had cold feet. How about you?
TGA: Just curious why you VMC types don't ever choose to discuss oil stocks like TGA on VMC Energy board? TGA gets discussed frequently on the VMC Motherboard but VMC Mothermembers hardly ever mention it on the VMC Energy board.
Anyway, I own some TGA and think it is a great company; really like the management team and their excellent reporting; very transparent management style. They seem to have weathered the tough political climate in Egypt and continue to grow daily production steadily.
TGA (well managed company) had nice quarterly earnings and had significant paydown of Egyption receivables. CCall at 11 EST.
_________________________________________________
TransGlobe Energy Corporation Announces Fourth Quarter and Year End 2013 Financial and Operating Results
CALGARY, ALBERTA--(Marketwired - Mar 5, 2014) - TransGlobe Energy Corporation ("TransGlobe" or the "Company") (TSX:TGL)(NASDAQ:TGA) is pleased to announce its financial and operating results for the three months and year ended December 31, 2013. All dollar values are expressed in United States dollars unless otherwise stated.
2013
-- Production increased to 18,284 barrels of oil per day ("Bopd") from an
average 17,432 Bopd in 2012, a growth rate of 5%;
-- Funds flow from operations of $139.1 million ($1.70/share diluted) based
on average Brent oil pricing of $108.64 in 2013;
-- Net earnings of $58.5 million ($0.65/share diluted), which includes $30.1
million in impairment losses;
-- Signed four new 100% WI concession agreements in Egypt that were won in
the 2011/2012 EGPC bid round;
-- Year-end 2013 Proved plus Probable ("2P") reserves decreased 7% to 45.3
MMBbl, representing a production replacement for the year of 48%;
-- Three-year weighted average finding and development costs of $10.02/Bbl
(2P) with a recycle ratio of 2.21;
-- Three-year weighted average finding, development and acquisition costs of
$10.23/Bbl (2P) with a recycle ratio of 2.17;
-- Collected $275.2 million in Egyptian receivables during the year
(including $127.4 million in Q4) reducing the total receivables
outstanding at year end to $148.3 million from $221.0 million in 2012;
and
-- Ended the year with $122.1 million in cash and cash equivalents; positive
working capital of $242.0 million or $154.4 million net of debt
(including convertible debentures).
2014
-- Production guidance of 20,000 to 21,000 Bopd, a 12% increase over 2013
using the mid-point of 20,500 Bopd;
-- Funds Flow guidance of $146.0 million, based on an average Dated Brent
oil price of $100.0/Bbl and using the mid-point production of 20,500
Bopd;
-- January production 18,932 Bopd; February production 18,000 Bopd;
-- Development lease for North Dabaa gas/condensate discovery (East
Ghazalat) approved February 18, 2014;
-- Expect to introduce a quarterly dividend ($0.05/share) in 2014 (subject
to lender and regulatory approvals).
A conference call to discuss TransGlobe's 2013 fourth quarter and year-end results presented in this news release will be held Wednesday, March 5, 2014 at 9:00 AM Mountain Time (11:00 AM Eastern Time) and is accessible to all interested parties by dialing 416-340-8527 or toll free at 800-446-4472 (see also TransGlobe's news release dated February 26, 2014). The webcast may be accessed at http://www.gowebcasting.com/5235.
BHRT ... tried to buy some Bioheart my bid was part of the ejection fraction. Didn't you wonder what was up with a medical test being performed in Mexico. I mean Que Pasa, dude?
You are right about the expensive time options. For instance here is what you see for PEIX April calls, but it also shows that there is a large (and growing option interest in April calls). PEIX was around $15.50 when these options were priced, but it has come down a bit from there, so options are a little less expensive now :
PEIX Apr 19 2014 47 Days to Expiration
Bid Ask Last Change Vol OpInt
10.0 Call 5.40 5.70 5.80 1.91 844 2,435
12.5 Call 3.50 3.70 3.60 1.50 43 1,593
15.0 Call 2.10 2.30 2.16 0.91 2,465 1,492
17.5 Call 1.20 1.40 1.50 0.85 1,298 189
20.0 Call 0.75 0.85 0.95 0.60 134 114
OT: PEIX status: I'd like to thank Keith Shaefer, Chen, Bobwins, and my mom and dad, for without them we would not be smiling today!
You are right that the author is not well versed in PEIX, but I did find the comment about ethanol exports interesting, and his point about Madera production seems to have indicated the company was not increasing production by factors, just incrementally, though 25% is a nice increment (with a higher margin plant). That author follows commodity-based stocks and is a long or short trader. Yesterday he shorted to try to catch a fade after the strong runup, but it didn't work. He also closed his short yesterday rather than risk a pop this morning.
By the way, his cautious comments on Briefing Trader correlates closely with the low of the day today, which makes sense due to the wide circulation of Briefing.com and particularly among traders that use their Briefing Trader service.
My opinion (I am long) is that it should move up strongly near or after Q1 earnings are announced (April sometime) but taking profits after yesterday's big runup will keep price in check for the very short-term. Examples of profit takers were K. Shaefer, Gecko, and Chen, because they've all wanted to book some big gains thus far. Gecko sold their whole position and was hoping for a pullback, so we may hear that they get back in soon. Chen and K. Shaefer trimmed but held core positions. Even Bobwins was probably adjusting which options to hold and which to cash in.
Briefing.com cautious comments on PEIX:
28-Feb-14 11:22 ET
Commodities Trader: Some color on PEIX/ethanol following +66% move in PEIX yesterday (13.35 -1.59)
Pacific Ethanol (PEIX) rallied as much as 66.3% yesterday to a session high of $15.02 following earnings and news. The stock ended the day 65.5% higher at $14.94.
Yesterday, the co reported a net profit of $0.54/share vs a loss of ($0.07) consensus.
Net sales were $215.3 million for the fourth quarter of 2013, compared to $197.0 million for the fourth quarter of 2012. The increase in net sales was attributable to an increase in production gallons sold, slightly offset by a reduction in our average sales price per gallon.
The co announced plans to restart production at its 40 mln gallon per year facility in Madera, California, which would bring the company's total operating production capacity to 200 mln gallons per year.
This raised the co's total ethanol production 25% to 200 mln gallons per year... not three-fold.
The co is sitting with a market cap of about $232 mln and a P/E of 6.8x (using 2014 earnings). However, I'm not relying on P/E's here as this is just from one earnings estimate, which was updated yesterday on Capital IQ.
Another ethanol producer Green Plains Renewable Energy (GPRE) has a P/E of 12.2 (using six 2014 earnings estimates). Again, for me, I'm not really comparing this vs PEIX. If you do, you can easily say that PEIX can skyrocket from current levels and move several points higher, but I don't think that would be an accurate statement to make.
I do not see that happening right now. Of course, with the government involved in your industry, radical changes can occur. So, watch the EPA moves closely (read more below about the EPA)
PEIX vs GPRE (Note: PEIX has ethanol production capacity of 200 mln, GPRE has 1 bln.. 4 plants vs 12 plants)
PEIX manages and operates four ethanol production facilities located in California, Oregon and Idaho. Co owns an 91% interest in the four plants. The plants have a combined production capacity of 200 mln gallons per year. The Columbia plant in Boardman, Oregon, the Magic Valley plant in Burley, Idaho and the Stockton plant in Stockton, California are currently operating at full capacity
GPRE is a vertically-integrated ethanol producer based in Omaha, Nebraska. The co currently has an ethanol production capacity of ~ 1.0 bln gallons per year with its 12 plants located in Atkinson, Nebraska; Bluffton, Indiana; Central City, Nebraska; Fairmont, Minnesota; Fergus Falls, Minnesota; Lakota, Iowa; Obion, Tennessee; Ord, Nebraska; Riga, Michigan; Shenandoah, Iowa; Superior, Iowa; and Wood River, Nebraska. We also operate an independent third party ethanol marketing business, Green Plains Trade.
PEIX notes is significant competitors Archer Daniels Midland (ADM) and Valero Energy (VLO).
The ethanol industry got a huge boost from the 2007 Energy Independence and Security Act (EISA), which requires transportation fuel sold in the United States to contain a minimum of 36 billion gallons of renewable fuels annually by 2022.
Let's move forward to more recent months...
In November, The Environmental Protection Agency's (EPA) issued a proposal to slash 2014 Renewable Fuel Standard (RFS) blending requirements to 13 bln gallons for 2014, down from 14.4 bln, citing decreased demand for motor fuel and a constraint on the percentage of ethanol that can be blended into gasoline without voiding vehicle warranties (10%).
This is a clear negative for ethanol stocks, if this were to occur.
Now, the talk is that the EPA might reverse their stance and leave things the way they are. Interesting. Let's watch closely.
But, for now, the current stance is that the EPA has proposed to cut back on oil refiners blend requirements for the year to 13 bln, down from 14.4 bln.
You may read about the U.S. exporting ethanol to Brazil, the world's second largest ethanol producer, but don't make much out of this. We are talking about exports of ~3.5 mln or so vs the 14.4 bln gallon blend requirement... tiny and not a catalyst at all in my opinion. Brazil, by the way, is the world's largest sugarcane ethanol producer.
Overall, I'm not going to get too excited over the co posting its best bottom line results since 3Q11, at least until more color comes out from the EPA about their proposal. Also, the Madera plant is boosting total company production 25% for the year... not two or three fold.
I love the idea of ethanol, I'm just being cautious on the move yesterday in PEIX and didn't see it holding, which is why I was shorting it. I held off staying short overnight because I didn't want to get caught in a gap-up scenario that didn't make sense.
RMP.to / OEXFF (up5% at C$6.72) ratings updated after good wells yesterday.
National Bank rated Outperform and C$8.50 target:
http://www.investorvillage.com/uploads/84373/files/RMPfeb272014.pdf
GMP Securities rated Buy and C$9.50 target:
http://www.investorvillage.com/uploads/8056/files/RMP-02-28-14-GMP-MC.pdf
Others are out as well. The two recent wells are a big plus for the company, and their new pipeline is about to be connected allowing them to increase production considerably!
RMP.to (OEXFF) well-covered by Oiljack at InvestorVillage RMP board.
http://www.investorvillage.com/smbd.asp?mb=17871&mn=565&pt=msg&mid=13588417
SFY: Global Hunter downgrades to Neutral
09:10
SFY
Swift Energy downgrade details -- to Neutral at Global Hunter Securities; tgt lowered to $17 (9.94)
Global Hunter Securities downgrades SFY to Neutral from Buy (lowers their tgt to $17 from $21). A transition to gassier production on a forecasted lower base of production for a co that has been in various stages of transition for a few years now is cause for concern.
Bobwins, congratulations on your PEIX vs. MMT leverage. Great reallocation on your part! I guess it was a way to make dead money come alive!
'peeker
Vivus (VVUS) tgt cut to $2 from $5 at Jefferies (6.75)
2/25/2014 8:42:48 AM ET
BriefingTrader Technical Scans for Tuesday, 2/25/2014:
The following scans are designed to give both Day and Swing traders opportunities based upon specific technical criteria. Market conditions/breadth should be evaluated to determine which set-ups will offer the greatest probability of success. Take the time to scroll through the charts and find those candidates with recognizable and clear technical patterns. Note on days where one particular scan results in too many stocks (20+), then those names with lower volatility and volume will be filtered out.
*Click here for further details and examples of the scans. You can also view a Video Webinar on trading these patterns by clicking here and here for a more recent update.
Any further questions, comments or suggestions can be emailed to Scott Smith, CMT, tapagescans@briefing.com
SET-UP DESCRIPTION RESULTS
Shallow Pullbacks Longs
Minor Corrections In Uptrends AAPL, AGN, DECK, FLR, MCK, MCO, SBAC, YY
Shallow Pullback Shorts Minor Corrections In Downtrends BLOX, CI, LNKD, NSM, OCN, STX, WHR
LQDXX Pullbacks RSI (5) below 30-oversold among Leading stocks none
Power Up 3 or more Days Running Higher AKAM, CAR, CBST, CTSH, DOV, ENDP, IBB, IWO, MDVN, NKE, SLCA, SRPT, TRIP, TRN, TRW, VFC, WHR
Power Down 3 or more Days Running Lower FBHS, FLR
Inside Day Range within prior Day's range DATA, DECK, FOSL, HAIN, HLF, IACI, IBM, KSU, LMCA, MCK, MHK, NOW, PCYC, PRGO, QIHU, SIG, SVXY, UVXY, VRTX, VXX, WDAY, YY
Inside Week
(updated Weekly) Last Week's Range within Prior Week's range AVB, CAB, CELG, COST, DISCA, FEYE, FFIV, FOSL, GNRC, PX, RGLD, RL, TWC, TWTR, UNP, YELP
Doji Day Narrowing Tight Action in normally Wide Range Stock BWA, CERN, CTRX, DE, DTV, GDXJ, INVN, JKS, KMB, LBTYA, PNR, RIO, RYL, SBUX, SVXY, VIXY, VXX, WAG, XIV, YUM, ZMH
Doji Week
(updated Weekly) Narrowing Action with Close near the Open for the Prior Week. EOG, GOOG, GS, IBM, MCK, NOC, OCN, PXD, QLD, RL, RRC, SFUN, TQQQ, ULTA, WHR
Overbought Up aggressively compared to 5-day avg range
ACT, AEE, AZN, BAS, BHI, BWA, CAR, CLR, FRX, GLD, HAL, HP, HUM, MAR, MYGN, SIG, SWKS, TRN, UA, VOD, WYNN, ZLC
Oversold Down aggressively compared to 5-day avg range CONN, KMP
Wide Range Breakouts Strong Volume move Higher above recent resistance Filtered for above avg volume... BBVA, BP, BX, CLI, CLR, CMI, COP, ECA, GTAT, HUM, IEV, JOSB, KNDI, LNG, LVS, NBL, NKE, NNN, OIH, RFMD, SLB, SNTA, SRPT, THC, TQNT, UNH, XOP
Wide Range Breakdowns Strong Volume move Lower below recent support Filtered for above avg volume.. KMI, KMP, PETM, RVBD, SWHC
Tight Consolidations A Few Weeks of Narrow Ranges HIW
20 Day Alerts Within 2% of 20-day simple moving average AAPL, BA, CVLT, EQIX, FDX, GS, HLF, ICE, MCK, SHLD, TW, TWC, ULTA, Z
50 Day Alerts Within 2% of 50-day simple moving average AAPL, AMP, CELG, EDZ, FAS, FDX, FOSL, IBM, ICE, LMCA, MMM, PH, PPG, SINA, SJM, SSYS, ULTA, Z
100 Day Alert Within 2% of 100-day simple moving average AAPL, BA, CAB, CTXS, ECL, FX, GS, MA, MHK, MJN, MON, PRU, STX
200 Day Alerts Within 2% of 200-day simple moving average APA, ASML, BRK.B, CAB, CI, CLX, COST, DISCA, EW, FDO, IBM, MUR, OAS, PG, PVH, ROST, SBGI, SBUX, SFLY, SIRO, STT, SWK, TSO
Zippers Stocks under $10 with Strong Up Momentum CHTP, CIM, FMCC, IDRA, INO, LEE, MVIS, NWBO, PACB, PEIX, PGH, RFMD, SMT, SYN, WEN, XOMA, ZGNX
BangForYourBuck
(updated Weekly) Best Daytrading/Scalping Movers Listed by highest volume... VXX, CONN, TSLA, TWTR, ISIS, TNA, CSIQ, DUST, NUGT, DDD, SCTY, PCYC, UVXY, SQQQ, YELP, JKS, SINA, GMCR, LNKD, BLOX, CTRP, IOC, QIHU, HLF, TRLA, PDCE, PANW, INCY, SVXY, NUS, MDVN, UGAZ, SODA, AOL, UBNT, SFUN, YY, Z, SHLD, SSYS, BITA, FEYE
BlueChip ETF Signals* Proprietary trend signal on SPY On a BUY Signal as of Feb 11, 2014 suggesting an Uptrend phase is in effect. (Prior Sell Signal was Dec 5, 2013)*
*This is based upon Daily and Weekly indicators and price action of the SPY. It is not to be used as an exact "timing" system, however, it is best used to establish an intermediate-term Long/Short "bias" based upon strong or weak momentum and trends. It can be subject to "false" or short-lived signals on occasion, especially if there are "gap" days that reverse through the prior day or week's range.
Read more: http://www.briefing.com/DisplayArticle/Article.aspx?ArticleId=NS20140224155812TAPageScans#ixzz2uL5TmVs5
PEIX earnings will be Wednesday afternoon! Given the low cost of corn and the high price of ethanol, it should be (in the immortal words of Felipe Alou) "very very good to me".
Pacific Ethanol, Inc. (PEIX), the leading marketer and producer of low-carbon renewable fuels in the Western United States, announced it will release its fourth quarter and year-end 2013 financial results after the market closes on Wednesday, February 26, 2014. Management will host a conference call at 8:00 a.m. Pacific Time / 11:00 a.m. Eastern Time on Thursday, February 27, 2014. Neil Koehler, Chief Executive Officer, and Bryon McGregor, Chief Financial Officer, will deliver prepared remarks via webcast followed by a question and answer session.
TGA overview:
Details at http://seekingalpha.com/article/2034153-transglobe-energy-50minus-100-percent-upside-with-a-margin-of-safety-and-low-expectations?source=email_rt_article_readmore&app=1&uprof=5
________________________________________________________
Transglobe Energy: 50-100% Upside With A Margin Of Safety And Low Expectations
Feb. 20, 2014 9:36 AM ET
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. (More...)
This article was first released only to PRO subscribers. Learn More
Market Capitalization: US$525m P/E (2013F): 7.1x
Enterprise Value: $400m P/TNAV (2012A):1.4x
30 day ADVT: $4.9m P/OCF (2013F): 4.0x
Auditor: Deloitte LLP P/OCF (2014F): 3.7x
EV/EBITDA (2013F): 3.1x
Introduction
Transglobe is an upstream oil company, with production assets predominantly in Egypt; dual listed in Canada and USA.
Contrarian due to multiple factors impacting sentiment, despite a strong track record in value creation and potentially material near-term cash returns to shareholders.
Whilst country risk is perennial, the substantial "noise" has resulted in a well run company, with meaningful upside and limited downside (in all but a disastrous scenario) having being mispriced by the market, providing a very favourable overall risk/reward.
Why is it Contrarian?
Egypt: the onset of the Egyptian revolution and subsequent political crisis has catalysed an understandable decline in the share price:
However, parallel to this share price decline, TGA's underlying fundamentals have improved significantly, as the company has continued to deliver:
... table not included here ...
*Company Guidance (see Investor Presentation- www.trans-globe.com/investors/presentati...).
Furthermore, all Egyptian Governments (military and Morsi) have remained strongly supportive of foreign oil companies, so whilst some impact has been felt, production has not been materially impacted, nor has there been any talk of appropriation (in fact the opposite, Government has recently been escalating repayment of its debts to foreign oil companies).
Variant View: Transglobe is now, twice the size, but half the price, with excess capital and the prospect of sizeable shareholder cash returns in the near future.
Reserve Downgrade: Jan-2014 saw a downgrade of 3% and 7% in proved and proved + probable reserves respectively for Ye-2013 vs Ye-2012, only adding to recent pessimism (www.trans-globe.com/news/release?id=1802222). However, with the share price -12% since, this issue appears to have been fully discounted.
Likewise, management has a strong track record of growing reserves per share at 20-25% per annum over the long term and with sizeable new concessions added in 2013, management expect to be able to book additional reserves once the new fields have design plans approved and in place.
Heavily Shorted: ~20% of share outstanding have been sold short (http://www.trans-globe.com/investors/faq.html). But this is NOT a function of hedge fund expectations for the company, but rather by investment banks (who are simultaneously long the shares) to facilitate a complex tax mitigation scheme for Canadian fixed income investors. This is explained in more detail in Appendix 1.
The use of the shares for such purposes is beyond TGA's control, but being one of the "most shorted" companies in Canada, only adds to its contrarian status, with many perhaps assuming it is due to fundamental concerns.
The onset of a dividend may complicate this matter and whilst the intricacies of the scheme are beyond of the scope of this article, perhaps a short squeeze remains possible.
Ageing Fields: lastly, the least discussed by the Street/market, but arguably most important concern is the sole major "micro" issue faced by TGA- namely that the two concessions currently represent ~80% of production and are both due to experience natural declines in output from the end of 2015.
Should management fail to extend their production ability and/or plug the gap by bringing other assets online, the market will not ascribe any meaningful multiple to TGA's cash flows.
However, whilst this may cap upside, the downside looks limited, as even conservative assessment of the NPV value of TGA's existing production assets, combined with current net working capital exceeds the current enterprise value.
Investment Thesis
Overview
TGA trades at heavily discounted headline metrics, has a partial margin of safety in terms of net cash, whilst also offering a public to private valuation arbitrage in the price the market is currently willing to pay for TGA assets vs recent corporate acquisition multiples in the Egyptian oil sector.
Margin of Safety
Net cash of $125m equates to 24% of market capitalisation, whilst adding net receivables (which is delayed proceeds from their sales to the Egyptian Government oil company who resells on their behalf) of ~$150m gives total net working capital of ~$275m (52% of MCAP) (www.trans-globe.com/news/release?id=1780901).
This provides a sizeable, albeit not full margin of safety, in the event of a disruption to operations/assets, given existing operational cash flow of ~$145m per annum is sufficient to fund total capex of ~$100m/annum (production and exploration combined).
Furthermore, the independent evaluators assessment of the after tax value of proven reserves (using spot oil) from existing producing assets only, discounted at 10% (reasonable given Egyptian Government USD bond yields of ~6%) provides an NPV of ~$425m for such assets.
Adding net working capital of $275m, implies a conservative intrinsic value of ~$700m. The current market cap of ~$525m thus offers shareholders a 25% discount to a conservative assessment of current intrinsic value.
This ascribes no value to the probable/possible reserves at existing assets, nor the exploration assets, both of which are sizeable at TGA.
Variant View: shareholders are offered a sizeable buffer against capital impairment by the current share price should fundamentals worsen.
Strong Track Record
TGA is a value creator, as witnessed by the per share metrics most relevant to an E&P oil company:
Production and reserve growth are the most important, thereby, ignoring the impact of oil prices (which is beyond TGA's control, but has clearly benefited them in the past decade)- the 15-20% historical CAGR in these regards is noteworthy.
Likewise, management have managed a total finding and development cost of ~$7/barrel over the past 3 years, whilst also having maintained cash operating expenses <$10/barrel, both extremely healthy at spot oil.
All in all, the current discount is not reflective of a poor track record on execution- management have created considerable value for shareholders on a per share basis, with this trend having continued meaningfully throughout the Egyptian crisis (and subsequent period of share price weakness).
Low Market Expectations
Trading on EV/OCF (2014F) of 3x, and P/OCF of 3.8x, TGA's valuation is attractive both relative to its history, growth outlook and peers- this reflects the pessimistic future currently assumed by the market.
In addition it trades at a large discount to recent take-out multiples in the space, whilst also offering material near-term cash returns to shareholders of perhaps 10-20% of the current share price.
Given the strong track record and current fundamentals, this discount looks unwarranted, if management can deliver only a fraction of their targets or historical success rate.
Variant View: the margin of safety in net working capital and embedded cash NPV from existing production assets allows shareholders a "free option" on the potential exciting ongoing TGAQ growth story.
Understanding the Company
Egyptian Backdrop
Whilst not known as an oil state, the industry is both extremely important and also well established with a transparent and stable regulatory framework, supported by the decades old participation of foreign companies.
Oil revenues contribute 25% of fiscal revenues, 40% of foreign currency earnings (more than tourism) and 70% of FDI.
Furthermore, heavily subsidised local petroleum has created "excessive" domestic consumption, with subsidies consuming 1/3rd of Government spending, posing a balance of payments crisis risk, given the broader political turmoil and economic malaise. Local price inflation for basic goods played a key role in catalysing the Arab Spring, and any weakening in the local currency linked to a deteriorating current account would only exacerbate this issue, flagging the importance oil plays in maintain the Government's legitimacy/popularity.
Likewise, the Government is the biggest beneficiary of domestic oil production, earning a healthy share of ~65-85% of the profits via its production sharing contracts. For example, oil at ~$100/barrel results in: $10 cost of production, $65 to the Govt and $25 to TGA. Egypt is not incentivised to appropriate assets, given the political considerations above, as the likely upon the industry/production would offset any limited incremental benefit to the Government.
All these factors have combined to make the Government (regardless of who has been in power) extremely supportive of maintaining and growing oil production, which they acknowledge is dependent on foreign capital and expertise.
Issues Experienced by Transglobe
Transglobe and other operators have not experienced a major impact to production since the onset of the Egyptian crisis, nor to TGA's ability to grow the company. Crucially, Egyptian oil production (including TGA) occurs predominantly in remote, sparsely populated areas thereby heavily insulated from the predominantly urban focused political strife.
This is best seen by TGA's Egyptian daily production approaching circa 2x the levels seen at the onset of the crisis.
Whilst there have been delays in Government related matters, such as awarding of new concessions, permit approvals and alike, the process has continued, albeit at a slower speed, helped by the Government's above prioritisation of the industry (overseen by a business friendly oil minister).
Government Account Receivables
The biggest issue encountered by TGA was getting paid, as its agreements with the Government require it to sell oil to the state-owned oil company that then resells and later remits payment. The crisis led to delayed payments, with the account receivable balances ballooning to $250m (50% of MCAP) for TGA- the market rightly questioning if/when this would ever be paid.
However, the Government took strong action to repay its debts in the later half of 2013 and the situation is now rapidly improving, back to pre-Arab Spring norms:
This provides a source of further upside, as the market still appears unwilling to value the sizeable working capital (net receivables plus net cash) within TGA, at 50% of MCAP- herein lays the opportunity for TGA shareholders.
Transglobe's Assets
Transglobe has two primary production assets at present, West Gharib and West Bakr, both of which are 100% owned and operated by TGL and contribute ~80% of current production. However, both are due to see declines in production from 2015-16- the single biggest risk facing TGA:
(click to enlarge)
West Gharib perhaps best highlights the track record on execution, management have grown production ~400% since it was acquired, and despite purchasing at a higher oil price environment in 2007-8, they paid a total of ~$100m for an asset that now produces ~$45m in net profit per annum.
West Bakr has also been a success, with management having grown daily production 35% since acquiring in late 2011, from 4,350/day to 5,900 and expectations for this to reach >7k by Ye-14.
Remaining production comes from two smaller assets: East Ghazalat and two fields in Yemen, both of which are non- operated assets, where TGA's holding is = 50%. Management commented that a recent change in at East Ghazalat ownership (the operator Vegas Oil & Gas was acquired), makes increased production more feasible, as the new owner is in favour of such expansion, whereas perhaps Vegas was likely more focused on selling itself.
Yemen on the other hand, has been plagued by local labour disputes with a 12 month halt to the majority of production up until Nov-13, with uneven stop-start trends ever since. Regardless, at peak production, Yemen could constitute ~10% of total (2k/boepd) and management consider it non-core, have halted further expansion and hope to dispose of this asset.
TGA has 5 other concessions, which have been acquired in 2012-3, none of which are producing, but from which management are expecting aggregate production of ~20k/barrels/day within 3 years (i.e. equal to current production). All are located adjacent to existing production assets held by TGA or in the vicinity of producing assets from other companies- thus whilst clearly uncertain and speculative in nature, management remain highly optimistic about their potential.
Taking a bet on future development stage natural resource assets is a risky game, but given the market currently ascribes nil value to such assets, there is an appealing "win if you are right, or don't lose if you are wrong" opportunity available. Such low expectations, despite a strong historical track record is the crux of the investment thesis.
Variant View: TGA is value in price but may be growth in opportunity.
Management
Ross Clarkson, an industry veteran, founded the company in 1997-8 and is still at the helm, holding ~2m shares (~US$15m), 500k options with $3.00-7.50 strikes and a further 200k options with strikes in the US$12-14/shr range- meaningful skin in the game.
The effective number 2 is COO, Lloyd Herrick who has been with the company since 1999.
Broader management are all industry experienced, and appear to have worked together previously at other firms, with notable experience in both Egypt and Yemen amongst the team and low turnover.
Insiders are incentivised with 6.9m options outstanding at a weighted strike price of ~US$9.50- 30% above the current share price.
Management have a 55% success rate in hitting initial FY production guidance, but a strong track record in long-term value creation.
The Board appears acceptable, with several former CEOs of energy companies and there are no related party transactions.
Valuation
Attractive Headline Metrics
Current metrics look attractive both relative to history and in absolute terms:
P/CF:
EV/EBITDA:
Source: Capital IQ
Using management production guidance and spot oil, TGA trades at 2013F and 2014F P/OCF multiples of 4x and 3.8 respectively, below the 5-yr average of 4.7x. The market is either not assuming management can successfully maintain and grow production and/or applying a heavy "Egypt" discount.
Once factoring in existing net working capital worth 50% of market capitalisation, EV/OCF (2014F) of ~2x, reflects a supportive entry point, given production declines are not due to begin until end of 2015- shareholders can earn back the entire enterprise value before any such concerns arise.
In addition, it is feasible that management continue their historical record and manage to grow production towards their target of 100% increase in output over the next 4 years.
Variant View: TGA may actually be an extremely cheap GARP stock, rather than a value stock with sunset assets- given how high multiples have gone in its prior "growth" phases (see above charts), the re-rating could be sizeable and implies blue sky upside in multiples of the current share price.
Soon Returning Cash to Shareholders
Net cash of ~$125m and total net working capital (net cash plus net receivables) of ~$275, combined with growth fully funded by healthy ongoing cash generation allows TGA to make sizeable cash returns to shareholders in the near future.
Management indicated their intention to return capital at the Q3-13 report and reiterated this in the reserve update in Jan '14, outlining they are considering between dividends and buybacks.
The company could feasibly return $50-100m to shareholders over the next year, still retaining ample dry powder for unforeseen issues- reflecting ~10-20% of the current share price.
Whilst the current valuation suggests a buyback the most value accretive, the use of the stock by third parties for such "derivative forward agreements" tax schemes, resulting in 20% of the float being short, may encourage management to initiate a dividend alongside a buyback. Such tax schemes (refer to Appendix 1 for more details) have a preference for non-dividend paying stocks to avoid any funding "cost" for the short.
Although in theory, the banks short TGA are also simultaneously long trusts holding an equal amount of stock, with the days to cover such short interest at 30-45 days, perhaps some element of short squeeze remains possible. Regardless, the removal of such short interest can likely only be a positive for sentiment towards the stock, with many more conservative investors perhaps shunning such a name, without knowing the reason driving such short positions.
Reference Transactions
Three arms length acquisitions in 2013 highlight the value a corporate acquirer is prepared to pay for Egyptian oil assets, strengthening the argument that the market is not ascribing fair value to TGA:
1. Apache sold a 1/3rd stake in its Egyptian operations to Sinopec. Whilst the comparison is very imprecise due to Apache Egypt's much larger scale (8-9x TGA's production), oil/gas mix (Apache Egypt: 40% gas) and the minority, non-operating/control nature of Sinopec's acquisition, the read across is still bullish.
(investor.apachecorp.com/releasedetail.cf...).
2. Vegas Oil and Gas was acquired by a Chinese company for ~$700m. This transaction received nil press attention and few details are available as the target was privately held. Thus, we lack information on its balance sheet or reserves, but Vegas is also 100% Egyptian oil and of similar size to TGA, with the two actually sharing once concession. Arguably, this makes the Vegas read across more relevant, and it is equally supportive.
3. Even a tiny disposal by Sea Dragon Energy, producing only ~200 barrels/day (with recent production declines) achieved a 65-85% premium over the current multiples ascribed to TGA (www.seadragonenergy.com/news/press-relea...):
Variant View: there is a public to private arbitrage opportunity between what the stock market and knowledgeable corporate acquirer might be willing to pay for TGA.
With a blended average premium of >100%, even only referring to the small Sea Dragon transaction implies > 50% upside.
Even applying a discount to TGA for its uncertain production outlook, the current mismatch appears excessive and provides both support for the current valuation and "blue-sky" upside.
As an aside, the Chinese state oil companies have been active acquirers in Egypt over the past year and are far less fazed by political concerns than "foreign investors, given their Government's considerable political influence and demand for natural resources.
Peer Group Comparison
Both Circle Oil and Sea Dragon are far less established in terms of their scale, operating history or financial strength and also face production/reserve short-fall issues- this further reflects the unwarranted discount currently priced into TGA shares.
However, the above also reinforces the general disconnect between what the stock market and industry participants are prepared to pay for Egyptian oil assets. For example, Sea Dragon recently disposed of one asset at $36k/barrel of daily oil production and the market continues to value the ongoing company at only a third of that value.
Variant View: it is supportive to see that even thought TGA appears the most attractive of the peer group in terms of both valuation and track record, the entire sector may be mispriced.
Putting it all Together- TGA's intrinsic value
As a base case, assuming management can offset planned declines in the current "core" fields, but still only grow production 10% in a cumulative sense (below historical rates and well below current targets), implies operating cash flow of $2/shr at current oil.
With a slight re-rating to ~4.7x P/Cf, in line with the historical average multiple implies a share price of $9.40. Adding $1/shr of near-term cash returns (~$75m), gives fair value of ~$10.40/shr, or ~50% upside.
However, there is clearly a bull case, where either management grow production more aggressively and/or a corporate acquirer is willing to match recent transaction multiples- whereby upside of > 100% upside is feasible.
Alternatively, a bearish scenario of falling production and a worsening of the crisis in Egypt, resulting in a high 20% discount rate applied to the NPV of solely proved reserves from current producing assets only is $360m. Add net cash of $120m and assume the ~$150m receivables balance is worthless, gives a fair value of $6.60/shr for 10% downside.
Note: outstanding convertible bonds treated at debt in Bear/Base case and equity in Bull case, to be conservative given conversion price of CAD$15.10.
Probability weighted upside of ~60% is attractive, in light of the limited downside in a bearish outcome, which is overshadowed by the substantial potential returns in a bull case arising.
Risks
Production Declines: this remains the single biggest concern, namely that profitably current production must be replaced in ~2 years with new development projects, posing considerable development risk. However, comfort can be gained that such replacement does not appear to be heavily discounted at the current share price and thus should this risk emerge, downside appears limited.
Meanwhile, the market remains unwilling to give management the benefit of the doubt, despite their long-term track record on delivering- providing a free option on them repeating history.
Egypt: country risk will remain in some degree perennially. However, attitudes towards Egypt remain at their lows and thus, the overall risk/reward remains attractive, given how supportive all Egyptian regimes have been towards investment by foreign oil companies and how they are incentivised to retain such a mindset..
Oil Price: every $10 movement in Brent impacts annual cash flow by ~$15m (~10%), but clearly this risk goes both ways and can be hedged by long-short investors, looking to invest in TGA's fundamentals, not speculate on the oil price.
Acquisitions: whilst planning to return cash, TGA remains acquisitive in an opportunistic sense, posing the risk they overpay for assets. However, to date their track record is exemplary and management appear highly disciplined (for example, last year they examined 7 targets and passed on all).
Conclusion
Whilst not without concerns, the overall risk/reward appears attractive, with the currently low market expectations and meaningful margin of safety offered at the current share price, there is limited downside.
Furthermore, should conviction be gained in TGA's ability to sustain production growth and/or should corporate acquirers take interest in the name, potential upside could shadow the more conservative assessments above, with bull case upside > 100%.
TGA is a buy for those willing to assume country risk, but the latter will always limit position size.
Keith Shaefer made a good call on PEIX. I think he is also positive on INA.v but don't have access to his newsletter myself. Can anyone share info from his oil and gas portfolio?
09:13 PEIX
Pacific Ethanol ticking higher; hearing estimates raised at Sidoti (7.98)
CYBK right back down 34% to $.216 (paper profits up in smoke?)
MMT.v will not have the high profit needed to throw at increasing shareholder dividends for awhile. The special 5-year tax break on their "marginal field" production from Umusadege ran out at the end of 2013.
Don't expect pipeline to be completed and commissioned before sometime in Q3 or Q4. In fact I'm concerned that the pipeline route that is twinning an existing pipeline may be delayed as the company who owns the other pipeline wants to upgrade to a bigger pipeline, so we may be competing for access to the ROW for pipeline installation. Hopefully this can be negotiated so that the new pipeline supporting Umusadege doesn't get another 6 month delay as they wait for the other pipeline to be upgraded. Money talks in Nigeria, and it's not always in English or above the table.
I do still hold a lot of Mart, though some have sold due to the lengthy delays and mgt underperformance vs. expectations.
Mart Resources (MMT.v) had an update today announcing good production per day for January, but the "news" included NO status on most of the long overdue "catalysts". For instance they are supposed to have two wells drilling, but they didn't bother to mention them (should be a standard part of each monthly update). Longtime investors are totally fed up with the lack of transparency available to retail shareholders. Of course some here were already fed up enough and smart enough to sell before the news, but not me, not good ol' loyal me.
Down about 7-8% today after being up early in the week. Lots of frustration being shared expletively on the IV board for Mart.
OT: MMT.v is down due Kozuh's not knocking on his woody (and perhaps some disappointment over today's news release)?
MMT.v listing in London would probably be preceded by a significant roadshow where Mart gets out there and estimates future cashflow and revenues with Umugini flowing and any deals they can arrange for new fields in the bag. Although Mart can acquire thru increasing bank loans with their current banks, being a London-traded entity should provide them with more substantial coverage in Europe and more lenders with better terms than are available thru Nigerian lenders.
I am optimistic that solving their pipeline issues this year and adding new fields will give them the transformational growth plan that supports any newly issued shares. There is also the idea that the London market entertains the whims of European investors (particularly energy company investors) that choose not to play in the (somewhat more sleazy/manipulated) Canadian markets.
If I were to give an example, I'd suggest the financial situation of another energy stock like Ithaca Energy, which is traded in Toronto and London.
Resolving their pipeline issues is goal number one; then new capital (at a higher price per share) should be available for their expansion plans.
At least that's my opinion; what's yours?
Mart (MMT.v/MAUXF) showing good volume and a strong upmove today. News on the way? Well yes, we all know good news is on the way, just don't know how long it's gonna take. Estimates below are my guess; invest at your own risk.
Lots of overdue "catalysts", such as:
1. increased capacity on AGIP pipeline (imminent)
2. completion of Umugini pipeline which should allow Umusadege partners to double daily production immediately (about 6-9months away)
3. bidding with indigineous companies for additional marginal fields (should be awarded in about 3-5 months)
4. possible partnership to purchase a field being divested by one of the majors (not sure from which one: Shell, Chevron, Agip?)
5. details about final flow rates for UMU-10 and UMU-11 (imminent)
6. drilling UMU-8 to deeper horizons (will increase proven reserves if they can flow from deeper sands which correlate to UMU-10 sands)
7. uplisting from Vancouver to Toronto exchange (imminent)
8. London listing (2-6 months out?)
9. February ops update (within 10 days; could include some status on some of the above)
Good luck,
'peeker
ps> It will be interesting to see if it outperforms PEIX (driven by ethanol-mania, Keith Shaefer and Chen Lin) over the next 6 months.
CDXC: Nice little company with good upside potential, though not yet profitable. Doubled after a recent IPO a few months ago, but has dropped back recently. Not profitable yet, but starting to gain a foothold with proprietary compounds for use as food additives and energy compounds.
Here is a recent article from January where the CEO talks about their products.
http://finance.yahoo.com/news/chromadex-ceo-frank-jaksch-clear-134258496.html
... and here is a radio interview with the CEO talking about their two main products and potential for several additional large multimillion dollar deals this year.
http://www.yorbamedia.com/images/stories/audio/TN010614SEG4.mp3
Interesting discussion about benefits of their products.
I own 10,000sh, and my sense (guess/hope/wish) is that if they do get a couple more big contracts for their products, they could easily pop from current $1.50ish to over two dollars.
Optimism aside, you may be able to get it a little cheaper if you put it on a watchlist. I've no idea when more big contracts will be announced.
Regards,
'peeker
GPRE was up 6% afterhours on good earnings. Bobwins says PEIX is unhedged and should report next month.
'peeker
13:14 DDD
3D Systems: Hearing J.P. Morgan lowering tgt to $54 from $67 (64.78 -11.06)
Citron on the 3D Printing warpath?
12:13
Citron's Andrew Left is scheduled to appear on CNBC's Fast Money tonight; stocks to watch include: TXTR, DDD, ONVO, NUS, NQ, QCOR, VJET
PEIX results due when? Just wondering if anyone knows when to expect results for 4Q14.
TIA,
'peeker
SFY - No idea why they downgraded. Of course it's only one of a sheetload of stocks that are down again today as most sectors in the US markets continue steadily lower. Good Luck!
SFY gets a downgrade:
03-Feb-14 06:44 ET
SFY
Swift Energy downgraded to Underweight from Equal Weight at Barclays (12.38 )
Butanol production could significantly reduce Ethanol demand. Worth thinking about, but not an immediate threat.
Butamax is retrofitting an ethanol plant in Minnesota to make Butanol in 2015. Gevo Inc (backed by Total SA; 5% owned by Richard Branson) is developing butanol.
It sounds like they are promoting the idea of modernizing plants to product Butanol over Ethanol as it has more energy, reduces CO2 emissions per mile, and is easier to blend.
http://www.bloomberg.com/news/2014-01-29/branson-s-butanol-heading-to-u-s-as-ethanol-substitute.html
Worth a read! Might even want to forward to KS.
'peeker
PEIX; OK, so KS sold a third. Makes sense; at least I bought my stake a little below that price. Thanks!
PEIX: Bob, has KS mentioned taking any profits off the table vs. his original 30,000 share purchase of PEIX (according to his newsletter)?
I was reading a summary page on his website that stated the following and I wondered if he had been stopped out during the recent dip in PEIX after he reached a double. PEIX fell >$2 off its high of $8.36 this month, then recovered a bit, as I was wondering how much he might have raised his initial stops to protect his substantial gains. I assume he is much more of a fundamentals-based value investor with energy stocks rather than using TA for lots of ins-and-outs.
"I don’t get this kind of return on every trade, of course. That’s why I insist on using tight stops – typically 10% – 15% – in order to limit losses…and open up capital for new trades."
VLO: Valero Energy beats by $0.31, misses on revs
7:58 AM ET, 01/29/2014 - Briefing.com
Reports Q4 (Dec) earnings of $1.78 per share, excluding non-recurring items versus guidance of $1.60-1.80 and vs the Capital IQ Consensus Estimate of $1.47; revenues fell 0.8% year/year to $34.43 bln vs the $37.28 bln consensus.
"We had a great Q4 and ended the year on a strong note," said Valero Chairman and CEO Bill Klesse. "Our refineries and ethanol plants ran well and at a high utilization rate in Q4. In refining, we took advantage of favorable crude oil discounts at most locations, while our ethanol business enjoyed high margins and set a record high for quarterly and annual operating income."Valero's 2013 capital expenditures, including turnarounds and catalyst, were $2.76 billion, which was below previous guidance. Valero expects 2014 capital expenditures, including turnarounds and catalyst, to be ~$3 billion, as previously announced.
OT: If Mao had been a Mau Mau, he would have been the son of a Kenyan. If kozuh had been a Muu Muu, he would have been appreciated more by lovely Hawaiian ladies.
'peeker
TGA ... added at $7.27 for the long term hold!
TGA down today on ops update and reserves update. Reserves down vs. last year is probably the reason the stock is down 9%.
I'll probably add as it gets near $7/share. Great company! Probably the best buying opportunity in a long time (IMHO).
5:18 am Transglobe Energy reports FY13 reserves (TGA) : Co reports activities focused primarily on the continued development of its operated West Gharib and West Bakr (acquired at the end of 2011) concessions in the Arab Republic of Egypt.
In Egypt, the Company's 1P reserves fell 3% from 2012, representing a production replacement of 85%. On a 2P basis, the year-over-year decrease was 7%, equal to a production replacement of 53%, while on a 3P basis, the year-over-year decrease was 12%, equal to a production replacement of minus 4%.
At West Gharib, year-end 2012 undeveloped reserve bookings were brought on production throughout 2013 which generally extended producing pools to the boundaries of the West Gharib lands. As a result, there were minimal new reserve additions to replace the 4.6 million barrels produced from West Gharib during 2013.
At West Bakr, significant reserve additions were achieved in the K and H fields due to detailed reservoir simulation, development drilling and production optimization. Overall, 2P reserves at West Bakr increased 22% on a year over year basis which represented a 268% replacement of the 1.8 million barrels produced from West Bakr during 2013.
East Ghazalat reserves were down year over year due to the 2013 appraisal drilling results and the corresponding decrease in the number of undeveloped drilling locations.
In the Republic of Yemen, reserves were reduced primarily due to production and reduced field activity associated with labor unrest in the country.
PEIX (bought it wrong, but holding for now):
Lots of uncertainties here, particularly how ethanol and corn prices will cooperate to PEIX benefit or not.
One negative thought is that if the market likes to look 6 months out, then any downdraft on ethanol prices or updraft in corn prices could infer easy narrowing of the profit margin, so it will be hard to project one or two good quarters into a forward year of earnings. In other words, PEIX movement will probably bounce erratically with the commodity prices vs. a low P/E projection.
That said, I like the stock; I just don't like how it has been acting the last two days. (I admit I bought too high and feel Forest Gump foolish here).
I'd sure like to hear any tidbits that Shaeffer is suggests in his frequent advice to newsletter subscribers.
Since it took off so fast in early January, many (including Shaeffer?) may have lighteded up a bit (with the quick double) due to concern that future exercise of long-term warrants (not quite in the money here) represent a significant increase to the fully diluted share count.
Alternatively any significant future warrant exercise could be spread out in the future and considered at a generous enough price that PEIX can move higher after they do report a profitable quarter.
Hmmmm.... what would Forest Gump do? Never mind, I think that's what I musta did already. Duh!!!