My take on NEP is as follows: Warrants are much lower percent of common compared to say, LPH, so cannot totally wipe-out 40 or 50 percent of net revenue with GAAP warrant adjustments at this time. Secondly, after the trading halt last summer a lot of people have doubled their impression of NEP's proper "China discount" on it's P/E. But that extra P/E discount due to distrust is very temporary, I would imagine if NEP releases earnings that show net revenue for the Q is similar (oil production plus drilling net earnings) to within +/- 10 percent of previous 2 or 3 quarters, we are golden because that will (1) reinforce in investors minds that NEPs revenues are legit and not likely to be drastically revised due to greater accounting scrutiny, therefore allowing investors to retract some of that extra P/E discount -- my guess is from P/E 4-ish to P/E 6-ish just from the confidence builder of another 10Q release. So if revenues decline 10 percent, over next 2 weeks investors will still realize their drilling subsidiary is going to start picking up the slack (remember the 100 well contract was not announced till Sept. 30 and is not reflected in this 10Q but will be in the next 10Q); and in addition investor confidence should grow the PPS from P/E 4-ish to P/E 6-ish. But that might be offset by a small 5-15 percent warrants adjustment to GAAP. It's certainly no worse when you add those 3 factors up than break even to where we are now. And that in my mind is the worst scenario. The mid-range scenario is that net revenue is equal, not down from previous 2 or 3 Qs, investor sentiment rises due to greater trust from P/E 4-ish to P/E 6-ish, and warrants have a small impact. The best scenario is net revenues rise QoQ, investor sentiment improves from P/E 4 to 8, and warrants are negligible to minor. So regardless of what happens in the first morning of trading after earnings release, within 1 week we should have no downside below where we are now and more likely upside of 15 to 30 percent, maybe even 40 percent in next month.
This is totally a guess not based on solid numbers, although I did run some warrants adjustments estimates a few weeks ago, hard given the multiple expirations, but I did a range of possible average values and no scenarios looked like they could wipe-out the lions share of Q net revenue.
AI
