Good to see Otto activity increasing after what has been a horrible few months. I have been tracking Talos Energy a little bit. Otto is basically a mini Talos with debt, similar gas / oil prodiuction ratio and operates in the GoM. From their q4 update in March (q1 due in a couple weeks?):
Key fourth quarter of 2019 highlights:
- Net Income of $0.3 million ($0.01 earnings per share – diluted) for the fourth quarter and Adjusted Net Income(1)of $71.6 million ($1.31 adjusted earnings per share – diluted) in the fourth quarter of 2019.
- Production of 54.0 thousand barrels of oil equivalent per day ("MBoe/d") in the fourth quarter, of which 73% was oil and 79% was liquids.
- Average realized prices of $57.65/Bbl of oil in the fourth quarter, net of transport and quality deductions, or $0.83/Bbl above the average WTI benchmark price of $56.82/Bbl during the same period.
- Adjusted EBITDA(1)of $155.8 million in the fourth quarter and Adjusted EBITDA excluding hedges(1)of $157.4 million. Adjusted EBITDA Margin(1)per Boe of $31.37, or 67%, and Adjusted EBITDA Margin excluding hedges(1)per Boe of $31.70, or 67%.
- Capital expenditures, inclusive of plugging and abandonment costs, were $86.8 million in the fourth quarter.
- Free Cash Flow(1)of $44.4 million in the fourth quarter.
- Year-end 2019 proved reserves of 141.7 million barrels of oil equivalent ("MMBoe"), of which 69% is proved developed with a PV-10 of $3.0 billion and Standardized Measure of $2.5 billion. Pro forma year-end 2019 proved reserves for the recently closed transaction, inclusive of plugging and abandonment obligations:
- At SEC prices, 181.3 MMBoe, of which 73% is proved developed, and PV-10 of $3.6 billion.
- As a supplemental sensitivity, at $45.00 WTI / $2.00 Henry Hub, 166.7 MMBoe, of which 73% is proved developed, and PV-10 of $2.5 billion.
- As of December 31, 2019, liquidity position of $673.4 million. Net Debt to Last Twelve Months ("LTM") Adjusted EBITDA(1)was 1.2x. Liquidity as of February 28, 2020 was approximately $600.0 million.
- Borrowing base increased to $1,150.0 million from $950.0 million as of February 28, 2020.
- Approximately 10.6 million barrels of oil hedged for 2020 with a weighted average price of $54.05 per barrel of WTI.
Talos has a market capitalisation of c$800m USD and has increased from a low of $300m USD in March and net debt of $1.0 billion (current + non-current = EV of $1.3b
Otto metricsObviously Talos has some growth projects in the works too, such as Bulleit but we can compare our production to Talos / market cap for a comparative example.
Production
Assume current production is still c3000 boepd including Lightning = 3,000 / 54,000 * 1,300 EV = $72m USD EV for Otto. This compares to Otto's EV of $25m USD (market cap + net debt).
Reserves
Otto has 2P reserves of 8.9 mmboe = 8.9 / 141.7 * 1,300 EV = 82m USD EV vs Otto's EV of $25m USD
Therefore, on a comparative basis, Otto is deeply undervalued...or Talos is deeply overvalued....
What does this highlight? Otto could be a target for Talos. They have balance sheet strength with lots of liquidity, are cheap and they could buy the reserves and strip management out. Paying 2 cps would probably secure it TBH. They might wait until Bulleit is derisked in anycase, it would be value accretive at todays price.
Just a thought. I for one would love to see a takeover...
(20min delay)