Well now I guess we'll get the first step of that journey come the AGM. So I feel its only fair to post what others CEO's have been saying and how we may expect that to be reflected in OEL.
First things first though, the basic assumption here is we have 3 producing asset
1. SM-71 Project - equal partner JV with BYE as operator
2. GC-21 Project - junior partner in a multi-party JV led and operated by Talos
3. Lightning Project - junior partner in JEDA led and operated by Hilcorp
4. Hilcorp JEDA exploration concluded with drilling of Beluga well ... results TBD
5. Alaska project - junior partner and remaining exploration capex of $5.2M
Second point, which I don't believe is semantics, is MU is talking "growing value" but not exclusively "shareholder value".
IMO, we (i.e. us here on this board) have to recognize that the current global supply and demand balance is "brittle" which is NOT conducive for growth in oil volumes. Capex cuts have been extensive across the industry and whether or not this leads to higher prices is demand driven.
That means to "create value" the company has to get its capital allocation strategy & priority right - because lets face it we are shareholders and the business keeps the "value" of our ownership of the business right in front of us in the balance sheet item called Shareholder Equity. So where can capital be allocated (and by this I mean cash and any retained earnings from free cash flow)?
(A) it can be reinvested into the business to maintain current production volumes ... i.e. don't shrink
(B) strengthen the balance sheet (i.e. keep it as cash and/or pay down debt)
(C) maximize our optionality for future shareholder returns
(i) by acquiring new earnings accretive projects (i.e. not exploration)
(ii) paying a dividend
(iii) buying back stock
What I don't want to here is "... we are considering actions to increase value such as ...."
What I do want to see here is
(a) We will keep production flat at approx xxxx by investing in yyyy
(b) We are targeting a free cash flow yield (FCFY) of zzzz. NOW THIS WOULD BE A HEALTHY CHANGE IMO from the present boepd nonsense. Happy enough for this to be measured using FCFF (Free Cash Flow to Firm = Operating Cash Flow - Capex) basis and FCFY = FCFF / EV
What's a reasonable target then? Energy Sector (large cap) avg is 4% - 5%.
Don't forget the company models production, hedges commodity price, manages costs and makes the investment decisions. It should not be a challenge to set a target. We have minimal Capex constraints, and an additional Lightning development well is a short cycle investment.
Working backwards say we set the target as 5% and we believe our EV should be ~US$80M
5% = (OCF - $5.2M) / $80M .... implies OCF ~ $9.2M
Let's not forget the company wants us to believe that the 5,000 boepd was in reach by end of 2020. If so call 2021 production of 1.8MmBOE ... and if we make a net margin of $5/Boe there's ~$9M
Target achieved!
Yes I've been a little simplistic but I want some real targets that are meaningful to shareholders. Cash flow numbers are harder to manipulate. Earnings are easier to manipulate (e.g. earnings per share increases as share buybacks increase ... why reward on EPS?)
Why am I looking at FCFY ... well in these low interest rate environments where are investors going to put their capital to work? Just look at OEL what OEL pays on its Debt - LIBOR + 8%. That alone suggests best use of FCF is to paydown debt.
Food for thought. I don't want cake - I want steak!
(20min delay)