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David Edwards

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  • Magnum Hunter: Divesting The Bakken Is A Critical Path Item [View article]
    Zeits, nice article. Good review of the funding situation, which interestingly appears to be a universal problem among Gary Evans-led businesses.

    I will add that there are more options than just the Bakken divestiture. Mgmt has discussed JV opportunities in the Marcellus/Utica area, particularly in the southern part of the play and also the potential for a Eureka Hunter monetization in 2015 (the latter much less likely to occur in my opinion than the former).

    The likelihood of an equity raise exists as you posited, but would be small by my calculations if it occurs again in 2014. The deal MHR struck with MS Infrastructure essentially gives MHR a 6 month rolling "costless" loan, which will help the company meet a large part of its unspent 2014 capital budget. I am not worried about 2014.

    You are right to suggest that a big deal needs to occur in the medium term. If the company wants any chance to meets its 2015 budget (unreleased but likely to be a monster), it will need a liquidity event somewhere. I agree the Bakken acreage will need to go, but we should also consider the implications of such a transaction. Primary among those implications would be that MHR will become much gassier at a time when Marcellus/Utica differentials are blowing out and natgas inventory is climbing back toward peak storage.

    Perhaps MHR will have success reaching a JV agreement in the southern Utica, which would kill two birds with one stone: 1) prevent the overall gassy mix shift from getting worse and 2) shift some Appalachia financial risk off to a partner.

    Finally, optimally we could see a Eureka Hunter MLP spinoff in a transaction through which MHR might retain control of the pipeline while simultaneously reducing some of the company's financial leverage. With Utica differentials approaching $2 in some locations (and therefore an abundance of supply in the area), I am sure Eureka Hunter will fetch a substantial valuation if sold/spun-off.
    Sep 27, 2014. 11:39 AM | 4 Likes Like |Link to Comment
  • Jones Energy - A Strong Cleveland Operator That's Being Overlooked By The Street [View article]
    Hi Amkac,

    Thank you for your thoughtful analysis and attention to detail!

    I am not going to pretend to have all of the answers, but I might be able to help clear up some confusion between the various curves management has put into slide decks.

    First issue: 118 IRR at $90 oil vs 60% IRR on cost savings slide. As you point out, this could very well be management being conservative. Incidentally, the 2013 Single Well IRR Sensitivity table shows ~60% IRR at $70 oil, which would tie to the cost savings slide.

    Second issue: 2013 type curve vs 2014 actual results. The 2013 shows the company's type curve for their Cleveland wells. A type curve is management's expectation of how the average well will perform given historical results. As JONE's operational efficiency improves and completion techniques are tweaked, actual results can differ materially from the type curve. And so, the 2014 curve you reference is not actually a type curve, it is production curve derived from actual results. Incidentally, they do not provide an EUR for this data set. It could be the case that there is more or less than 135 Mbbl of oil ultimately recoverable from the average well. Regardless, I don't think it is appropriate in this case to apply the percentage of total oil produced in year 1 from the 2013 type curve and apply it to a curve based on actual results.

    You are correct to point out that oil recoveries in the early years appear to be lower than the 2013 type curve (which might be part of the reason management was so focused on the new frack design). However, we have no indication what the ultimate recovery of oil will be. In my opinion, the flatter decline curve in oil production over 5 years seen in actual results bodes well JONE's production mix. I'm thinking the type curve was going to need to be revised higher regardless of the frack trial outcome. Now that the frack trial is a success, an upward revision is all but certain to happen.

    As you astutely pointed out, these curves are both moot going forward. All new Cleveland wells will utilize the new "super frac" (as I call it) design.

    Hope this helps!

    Aug 22, 2014. 10:47 AM | Likes Like |Link to Comment
  • Alaska Communications: Overselling Has Led To Minimal Downside Risk, 35% Upside [View article]
    Alpha Bet, I find your analysis interesting. Just some questions:

    1) Would you mind discussing what you think AWN is worth if, let's say, Verizon were to attempt to acquire it?

    2) AWN is now virtually a monopoly on wireless in the state of Alaska, what kind of EBITDA multiple do you think an acquirer would have to pay to take control of it?

    3) Why do you call the debt reduction at ALSK "steady," when ALSK is due almost $190M in preferred payments from AWN over the next 4 years that management has stated they will use to delever?

    4) Will this debt reduction not accrete to equity at least dollar for dollar? => This debt reduction alone would provide far more than 35% upside to the equity assuming the company's EV remains flat over the next 4 years.
    Dec 3, 2013. 09:06 AM | 1 Like Like |Link to Comment
  • An Open Letter To Gary Evans, CEO Of Magnum Hunter Resources [View article]
    Let me remind you that blind faith in management is not a legitimate reason to invest in anything.
    Nov 14, 2013. 09:19 AM | 1 Like Like |Link to Comment
  • An Open Letter To Gary Evans, CEO Of Magnum Hunter Resources [View article]
    Let's say the company sells the Pipeline for $600M net to MHR and only needs $400M for its forward capital plan. Why not buy back $200M worth of shares at a 40% discount to the midpoint of the company's presented NAV?

    I doubt Gary will do this, but doesn't hurt to suggest doing so!
    Nov 12, 2013. 05:10 PM | 1 Like Like |Link to Comment
  • Kinder Morgan Partners: Hedgeye's Error Could Cost You [View article]
    It might be useful to look at $ maintenance capex to miles of pipeline maintained. In my mind this would be a more intuitive metric than maintenance capex to total capex budget as capex budgets vary from company to company.
    Sep 18, 2013. 08:52 AM | 3 Likes Like |Link to Comment
  • Magnum Hunter's Hidden Billion Dollar Assets [View article]
    You took the words out of my mouth ;)

    Well said!
    Sep 15, 2013. 08:57 PM | 1 Like Like |Link to Comment
  • Magnum Hunter's Hidden Billion Dollar Assets [View article]
    Mobywhite, I point you to this month's corporate presentation for some data points on initial IPs and production data:

    I also suggest looking at Samson Oil & Gas (SSN) or Continental (CLR) for transaction history in Divide and Burke Counties.

    I think the point you are getting at is a fair one. There have not been transactions in these two counties for the $5k/acre level I infer in the post. This is a legitimate point of debate.
    Sep 15, 2013. 03:35 PM | 1 Like Like |Link to Comment