Dropped into the Maverick AGM on Friday. Having walked away from one of Don’s AGMs feeling decidedly uneasy, I thought Mike’s presentation was consistent with the company’s direction we’ve been promised for the last 12-18 months. IMO, the share price decline remains a black mark, as we don’t want to be asked to contribute capital at this level. It’d be great if the company could try and sell the new approach a bit more aggressively through their Australian partners.
Key takeaways for me (my interpretation of Mike’s presentation and associated Q&A):
They know how to value potential acquisitions and will not over pay. This is evidenced by the company having already been outbid on what was an overpriced asset, and their rejection of several other unsolicited proposals by distressed or soon-to-be distressed companies.
US companies continue to value their reserves on oil prices from the trailing 12 months. When US banks reviewed company valuations in April, asset values were inflated. When this occurs again in October, assets currently valued at closer to $100 a barrel will be valued by their debt owners at closer to $60 a barrel. It’s only ‘early in the cycle’ with many more distressed assets due on market over the next 12 months.
There is plenty of competition for these assets, not from the majors but from mid-tier oilers, many backed by private equity. Mike isn’t interested in sourcing funds from private equity (with their associated conditions – board representation etc).
They have Tudor Pickering Holt and Ed Sugar working with them (not against them) on potential acquisitions.
Funding isn’t an issue. Beyond the Wells Fargo facility (more than USD$500m) they have another ten or twelve investors willing to throw in funds in the vicinity of $50m to $150m each.
Their preference is for approximately a 50/50 split of debt and equity; however we will likely end up with a bit more debt than that early on.
Not only have they cleaned house with their (IMO now very genuine) reserves, but outstanding environmental issues on Blue Ridge have been cleaned up, and they’ve declined participation in any new partnership with Gulf South.
I can understand everyone’s frustration with the seemingly slow pace of acquisitions, however anyone who’s ever been involved in an acquisition, merger or divestment would understand just how complex and time consuming screening, due diligence and usually the most difficult of all – price negotiation - tends to be. It looks to me like they have adequate funds for a ballpark $2 billion dollar acquisition (Mike reiterated a preference for three major acquisitions over three or so years). Plenty of acreage is being released by stressed firms, and based on what’s in play now, there is a reasonable chance that they will pick up quality acreage in the next few months; however I wouldn’t be expecting a major company making acquisition until the banks start looking again at their numbers in October. Mike suggested that they’ve spoken with several potential targets (who are currently seeking too much value for their assets) and that some of these may be more motivated as October closes in. If it doesn’t create value at $60 a barrel, Maverick isn’t interested.
I’m reasonably confident that this team will deliver over the next 12 months, picking up good acreage and making a major acquisition. Whilst I’m also confident these acquisitions will create short, medium and long term value for shareholders, it’s obvious to me that this will become a predominantly US owned company. I’m happy with that, I’m just hoping we don’t get asked to contribute with the share price in the vicinity of ten cents.
FDM Price at posting:
9.1¢ Sentiment: Hold Disclosure: Held
