TVOC gets 55% of revenues from gas and does NO hedging
TVOC earnings, due out by 11/15, should be strong for Q3 given the sharp rise in gas prices. Roughly 55% of Texas Vanguard Oil revenues are from gas (at current prices), and they are UNHEDGED …. at least no mention of hedging is made in any of their SEC filings. Last year their peak earnings quarter was Q3 with EPS of $0.27, fully taxed and diluted. TVOC looks like a bargain at $6.75, especially in view of their very large oil and gas reserves.
Quarterly earnings are somewhat unpredictable due to exploration costs which first appeared in Q2, as well as increased production costs, probably due to ‘workovers’ and maintenance of wells performed after the winter. Q1 EPS was $0.20, but Q2 EPS dropped to $0.12. However, longer term the exploration expense should be good news in view of the Company’s 8000+ net acres of undeveloped oil and gas property primarily in Texas. Production rose a modest 6% y/y in 2004 and hopefully that trend of increased production will accelerate in 2005 and going forward.
While TVOC seems to have the potential for explosive earnings growth, primarily I view it as an asset play on their substantial oil and gas reserves. Reserves, rather than earnings, are the primary measure for assessing an oil company’s value, especially in a takeover.
In the latest 10K filing TVOC claims proved reserves of 935k barrels of oil and 5975k MCF of gas. To put this in better perspective, those reserves significantly exceed the COMBINED reserves of ASPN and FPP as of their latest 10K filings. Together ASPN and FPP claim 883k barrels of oil and 3591k MCF of gas. The market cap of TVOC as of Friday’s close was a mere $9M, while the market cap of ASPN and FPP combined was a hefty $100M. Yet TVOC has 6% more oil reserves and 66% more gas reserves. Hard to believe, but that’s what the SEC filings indicate ! If given the same valuation as ASPN and FPP relative to reserves, TVOC would trade at $80 per share rather than $6.75. It won’t go to $80, but at least $10 seems like a good short term price target.
Undeveloped acreage is also substantial for TVOC. They report 8053 NET undeveloped acres of property, mostly in Texas, while ASPN and FPP together report 5138 acres of undeveloped property.
Granted, there are problems with TVOC such as the high insider ownership, the lack of any PR, the sparse detail in their 10Q’s, and the thin trade in the stock. On the other hand, the Company has been public for 25 years, formerly trading on the old Boston stock exchange under the symbol TVO and nobody can accuse Management of ‘pumping’ the stock. The reserves are being valued as though this Company were based in Kazakhstan rather than ‘good old Texas’.
PS I’m not being critical of ASPN or FPP, but the comparison is essential to understanding the relative undervaluation of TVOC with regard to reserves. Obviously ASPN and FPP have excellent investor relations and provide constant updates on any new drilling activity. There is much greater liquidity in those stocks, and they command high PE’s. But TVOC looks like a great value play … a stock to buy and hold long term, imho.
