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Mid-Con Energy Partners Is Doing A Fantastic Job


  • The management team at Mid-Con continues to surprise investors, not only when it comes to debt, but when it comes to reserves as well.
  • By any real measure, the company looks significantly undervalued relative to reserves.
  • However, there are some items I'm not terribly happy with, which I believe management can and should work on.

I can’t help but to applaud the management team at Mid-Con Energy Partners (NASDAQ:MCEP). The firm recently announced financial results for the fourth quarter of its 2017 fiscal year, as well as expectations for what 2018 should look like. On the whole, the company has done well to recover from the oil price downturn and, while some pieces of news are less than ideal, the data is better for Mid-Con now than it has been in a while.

Debt keeps declining, and reserves are rising

As I reported in a prior article, the debt picture for Mid-Con has improved as of late. Due to preferred stock offerings and some asset sales, debt has now dropped to $90.2 million, down from $99 million at the end of last year and down from $122 million at the end of its 2016 fiscal year. Not only that, but the E&P firm’s credit facility capacity of $125 million (implying liquidity today of $35.8 million) offers some wiggle room in the event that the oil markets happen to tank again.

While this data isn’t new, one piece of news that is relates to Mid-Con’s reserves. As you can see in the image below, total proved reserves as of the end of 2017 came out to 19.557 million boe (barrels of oil equivalent). Of this, an impressive 95% is oil, which matches well the roughly 93% of Mid-Con’s production that is in the form of oil. At the end of 2016, the company’s proved reserves totaled 19.231 million boe, which implies a modest increase of 1.7%, but this doesn’t account for some differences in the timing of events. In December of last year, management divested of assets in Oklahoma that represented 2.70 million boe and early this year they closed the purchase of assets in the Powder River Basin with proved reserves of 2.974 million boe. Keeping all else the

This article was written by

Daniel Jones profile picture

Daniel is an avid and active professional investor.

He runs Crude Value Insights, a value-oriented newsletter aimed at analyzing the cash flows and assessing the value of companies in the oil and gas space. His primary focus is on finding businesses that are trading at a significant discount to their intrinsic value by employing a combination of Benjamin Graham's investment philosophy and a contrarian approach to the market and the securities therein. Learn more.

Analyst’s Disclosure: I am/we are long MCEP, LGCY. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (41)

are you still bullish on mcep
John Goff is a billionaire. Hopefully he takes this private at a premium
Yes, hopefully.
"Hopefully he takes this private at a premium"

If he wants to take it private, why did he not do it when it was 95 cents a share?
because he bought preferreds that pay 8% a year instead that are convertible to common at $1.50 and $2.15. Not bad
What's your view on why MCEP is still a public company given such small size? What would you do if you were John Goff, who owns 13.7%, 4,790,697 shares, of the company? Thanks
AMPY (former MEMP) also trading below PV10. Enterprise value closer to 5x (excluding hedges which have some positive value for them).

Remember that PV10 doesn’t deduct overhead expense. It’s more relevant in a liquidation.

Market not putting a high value on mature assets any more. After blow up of the mlp model.
Just remember this is the same management team that screwed shareholders out of a lot of money. Why are they now strategic geniuses? Put your money somewhere in a management team that knows what its doing
"that screwed shareholders out of a lot of money."

You mean this mgmt team purposely engineered a drop in oil prices from $130 to $30, in order to purposely screw the shareholders?
Given their hedges and oil futures in 2019 any beyond, valuation of this still seems to be based on mid to high $50s oil. That would result in ebitda in the $26-30mm range.

A 6.5x enterprise value on $28mm ebitda would result in a share price of $1.73 (before any dilution). Market price pretty close to that.
All great minds, I just read another article suggesting CRC could be a good bet on oil price, https://seekingalpha.c...
Since MCEP is also a bed on oil price, which do you think is a better horse? and why? Thanks
Daniel Jones profile picture
I haven't looked at CRC to be honest. I'll add it to my list though. :)
BJA-2 profile picture
Reserve pricing for PV-10 is now official for Q1 2018, at $53.49. It's up from the reserve price used in the MCEP Q4 2017 year end valuation that was $51.54.

The 3.8% increase in price has a levered impact on PV-10's, probably a 7-10% increase in MCEP's new PV-10.
DCF is what on mcep now? any chance they’ll resume quarterly distributions?
Banks are controlling them. How can they have distributions to common holders?
ANZ....are there any specific covenants on distributions?
Fred, banks are asking them to have hedges in order to have enough cash flow to pay debts, so doesn’t it mean that banks are nervous? So how can the company have distributions to common holders? In addition, the company has violated the covenant for credit line some times quite in last years
Still waiting for MCEP to break back above $2.....as oil heads back above $60 and higher...
You still have to wait at least oil price in the $70 for a couple months in order to see mcep in the $2
How do you arrive at that? MCEP was over $2 when oil was in the $50s last year, however now it's reduced its debt, increased its liquidity, and has eliminated the overhang of their $50 puts
Cyclical Trade profile picture
Yes ballpark numbers done by Fred and others show value in $2's with WTI at $60's already. Also not forget operating leverage, which means $70's is a bigger win than $60's.
I too am impressed that MCEP has been able to hang in there in spite of its bank syndicate, My guess is the banks continue to make management hedge a lot of the company's production to ensure they get paid. If prices stay high enough for long enough perhaps MCEP shareholders may see more of a direct financial benefit than heretofore which has been pretty much for the benefit of the banks.
Out of MCEP. Still a risky company that just barely scraped by and appear to be way behind on their waterflood projects. Hope will remain with those underwater but I took my medicine and moved on to other opportunities. How long are shareholders going to have to wait for positive results?
I would caution on using the Linn 1.41 multiple. Linn only reports the value of developed reserves when they announce transactions , while MCEP PV includes undeveloped as well.

Some of the Linn transactions had significant undeveloped potential.

Some of their transaction with less potential were around or below PV at $50/3.

I also assume most of the increase in PV for MCEP is due to the higher price assumption used in 2017 vs 2016.
Daniel Jones profile picture
You're absolutely correct. That's why I'd opt for the lower end of the valuation range. Although the undeveloped figures for MCEP make up around a quarter of its PV, which could distort the valuation, it's probably best to assume something around today's energy prices but factoring in the absence of the new purchase of reserves that closed this year. Always be conservative with stuff like that. The assessment I gave there was more of a back-of-the-envelope. Eventually I plan on a more detailed assessment of the company based on cash flows. :)
Omega Analytics profile picture
What are your thoughts on EVEP?
Daniel Jones profile picture
I haven't looked at it recently. :)
Omega Analytics profile picture
No interest because majority natural gas or just not interested in the prospects long term?
Because the company is going to declare bankruptcy and restructure the debt. Equity is pretty much worthless
1.41 x PV is interesting and would explain lgcy too
You’re saying mcep is worth $5 right at this current moment?
Looks like he said low end now $3.92 based on 1.41 x PV
Daniel Jones profile picture
I'd stick with somewhere around the low end of my valuation to adjust for the difference in PV for MCEP vs LNGG. I like $4 to $5 to be safe based on this valuation approach, but I intend to do a cash flow approach soon. :)
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