Value Microcaps Motherboard

[Marvelmeister2002]

CPE Presentation

Just listened to CPE's April 19 IPAA presentation. http://www.vcall.com/ClientPage.asp?ID=91276

I was quite impressed with what I heard. Comments/corrections welcome and note that the quotations indicated below are generally not exact (more like paraphrases)

A few highlights:

1) Q1 production was confirmed at around 73 MMCFEPD (wouldn't expect them to come in higher than 73, as the CEO said late in the presentation "Q1 was around 72-73 MMCFEPD"). That's outstanding, especially considering that oil hedges were much less of a problem and oil prices were at all time highs. Better yet, 45% of their production was from natural gas, and natural gas prices were terrific and unhedged for CPE in Q1. Obviously, the company's pre-tax revenue for Q1 will easily be at an all-time high. Yes, the EPS comparison will be to an untaxed 2004 number. But the street should be able to take that into account, and recognize a blowout quarter when it sees one (I hope. LOL).

2) More importantly the CEO, after mentioning the 73 MMCFEPD number, said "we expect that level of production to continue in 2005". That's huge, as he essentially told us that we should expect to see the company's production come in at least toward the high end of 2005 guidance (previous guidance was 65-75: http://news.moneycentral.msn.com/ticker/article.asp?Symbol=US:CPE&Feed=BW&Date=20050309&...

He made several supporting comments that similarly made me feel confident that previous 2005 guidance is now being viewed as conservative. After he mentioned the great cash flow expectations for 2005 he said something like "more importantly, we have a good inventory of prospects to drill". At another point he said something like "we expect that, with the new discoveries coming online, we have big production increases over last year sort of built in."

My point is that it wasn't just the first comment about production "continuing at that level throughout 2005" that makes me think 2005 production will be at (possibly even above, though I'm not counting on that) the high end of guidance. It was the entire tenor of the presentation.

3) Cash flow in 2005 expected to be "well in excess of $100 million....up 50% over 2004 cash flow (which was 71 million. So it seems reasonable to expect at least $105 million in operating cash flow in 2005. That would mean CPE at $15.50 would be trading for about 3 times projected 2005 operational cash flow)..... and budget is $80 million. So our balance sheet will be further improved." This comment speaks for itself. Very impressive. Will be nice to pay off at least $20 million more debt in 2005, as this will increase EPS and make the story more impressive.

4) This wasn't new, but the CEO once again emphasized that the company will be spending $60 million on reserve additive drilling. One of the knocks on the company was that last quarter saw a reserve depletion. It sounds like they're about to start adding reserves. Increasing reserves, plus tremendous current cash flow, plus paying down debt, plus very significant exposure to both higher gas and oil prices (with bad oil hedges falling off)....overall, I think it adds up to a good play from current levels. I think that CPE clearly should be trading above $17 (at the very least), and hopefully it will be back there after the Q1 presentation.

It seems that the company gave another presentation on 4/22 http://www.callon.com/
But I can't seem to access it. If anyone listens, please share your thoughts.
Meister