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Energy Investing
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Re: GEAR monthly reportBoy Scott, you're sure pushing my buttons tonight (in a good way). 7% debt paydown during a period of relatively high capex. Imagine what happens once capex settles down. They're planning to spend $27m this year, so straight line is $2.25m/mo. They spent $3.5m (annualized $38.4m, if it stayed at this elevated level, which it won't). And they overtly reassure that Q4 will show lower capex than Q3 (the last well of the 2021 18.3 net well program is already TDed), which is fine because their production recovery is tracking ahead of schedule. All we have is completion and tie-in costs. As for the production profile, last year we got down to a somewhat uncomfortable 5,300 boe/d, and early this year they were planning a maintenance to mild recovery program to get us back to 5,500. Recently, with debt vapourizing, they added another $5m capex to get us moving forward again to 5,800-6,000 boe/d by year-end; however better than expected Q2 and Q3 results has current production already at 5,866 boe/d. As for their dogged determination to eliminate all debt, they point out that since Q1'20, they have paid off 60% of outstanding debt. And to year end, they expect to payoff 60% of the remainder (or an additional 24% of the original 100%) for a total of 84%. Only 16% left to go in Q1'21 (I think we had $70m, so call it $11m o/s unless they're sandbagging, could be a bit sooner), which means basically debt-free by mid-March'22 , latest. Maybe Feb-end if Q4 goes a bit faster based on better pricing and lower WCS differentials as Line 3 gets cranking in a week or so. I am feeling better and better about this story, corporate risk is declining dramatically as we, without any doubt, will be completely debt-free SOON and operational success in the form of production growth is proved affordable at the same time as reams of FFO are being sent to our crop of craven coupon clippers (the 4-Cs, about to be ex-lenders). I ask again, what will happen at the end of Q1 (latest) when their is $0 debt, 8-10% growth is already re-established within a capex program of $27m and we're cash-flowing well over $50m/yr. (and that's before growth and just steady current pricing helps CF grow higher down the road)? There are 260m shares, $23m FCF is almost $.09/sh. The initial priority will be a combination of share buybacks, small bolt-ons and possibly higher growth but dividends are also within sight, perhaps later in 2022. Regards, Naamkat |
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