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The preferred stock elects the board of directors. The acquisition of the condensate production exposure is a huge plus for profitability in the future. That can be a lot riskier because management does not hedge unless they think they need to. Investors have a chance to participate right alongside some very experienced "big boys" in the deal making world. Please. Please. It also has an acquisition that will likely continue to provide a positive earnings influence that is not available to many of its peers of a similar size. is a Canadian company that also trades on the NYSE. I analyze oil and gas companies like Crescent Energy and related companies in my service, Oil & Gas Value Research, where I look for undervalued names in the oil and gas space. Such an acquisition can be enhanced by the periodic sale of higher cost production (and then plowing that money back into new lower cost wells). This article is an example of what I do. Please disable your ad-blocker and refresh. If you have an ad-blocker enabled you may be blocked from proceeding. I analyze oil and gas companies like Ring Energy and related companies in my service, Oil & Gas Value Research, where I look for undervalued names in the oil and gas space. The specific part of this is the Class B and OpCo units. The high oil percentage of production allows an almost "guaranteed improvement" although the recent price increases of other products certainly "help the cause along.". Those debt ratings and the market price of the common should climb appropriately. For those where this type of investment is their "cup of tea", then it's time to consider getting in and fastening their seatbelts for a very exciting ride. Management is likely to repay about $40 million of debt in the current fiscal year while growing production roughly 15%. Here, the debt levels combined with the very profitable wells will allow management to "drill its way out" of the whole situation. But the real test of many of these acquisitions will be the performance of the assets during the next industry downturn. There are going to be a lot more shares outstanding than was the case before the coronavirus demand destruction. Investors are advised to review all company documents and press releases to see if the company fits their own investment qualifications. This management, through production increases and repaying debt, has a goal to have reasonable ratios at considerably lower prices. Growth will then come from bargain acquisitions that are accretive as well as organic growth. Many times, that plan of operation does not work. That change as well as the continuing speed of that change will likely determine the company performance during the next downturn. This idea was discussed in more depth with members of my private investing community, Oil & Gas Value Research. Consistent hedging is generally looked at by the market as a zero-sum game. The fourth quarter earnings report has a huge mark-to-market" hedging adjustment that really clouds the operating results. Further indications of future outperformance come from the emphasis of cash flow at much lower commodity prices and a focus on the debt ratio at those lower prices. In this case, management appears to be in a very good position because that older production was purchased either in bankruptcy court or during a time of considerably lower prices. I am a high school teacher for a decade. The decline in hedging will lead to cash flow growth. As long as prices do not head back in the $40 range for oil, this company should recover nicely enough to be able to put the challenges of the past few years aside. The current environment should allow for a very fast return of the purchase price. The other key part of the slide above is that management is going to avoid the trap that sentenced many limited partnerships to the graveyard by keeping the dividend low (and the debt low as well). Management sees a lot of potential bargains in the market. A large company like this has a fairly diversified amount of production with an emphasis on light oil and condensate. Right now, though, I like the chances of management to succeed with this acquisition. Disclosure: I/we have a beneficial long position in the shares of CRGY either through stock ownership, options, or other derivatives. This usually continues until the older wells no longer generate cash flow. So many do not realize that the market determines profitability of cyclical companies by their performance throughout the business cycle. The company has begun to branch out from acquiring older production and optimizing those operations to some operations that involve drilling and production increases from new wells. Both of those have changed considerably in the last few years. But management has to also demonstrate that there is enough free cash flow to repay the debt while growing production and maintaining operations properly. In the meantime, there are a lot of deals for stockholder gains to be made. Crescent Energy Financial Conservatism Description (Crescent Energy Fourth Quarter 2021, Earnings Slide Presentation). I have a high school teaching credential and an MA in Math Education. That company itself filed bankruptcy with too much debt. It also makes it hard for the market to value the current collection of assets. Additional disclosure: Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of stock. So, that means earnings and cash flow will jump in the second quarter when compared to the first quarter.

The company had an original plan to use debt to get to a proper level of production as the company left the development or lease acquisition stage. This article is an example of what I do. However, the higher than projected current prices often shield a situation like this from cash flow issues until enough new wells and lower costs have been established throughout the purchase. I am not receiving compensation for it (other than from Seeking Alpha). That left management with insufficient cash flow compared to the debt, with an asset story that was now meaningless to lenders. GAAP accounting therefore requires a noncash value adjustment of those hedges every reporting period. Then again, the whole reason for acquiring assets is to improve performance. Therefore, management was able to acquire properties for some extremely low prices. There are always risks to growth by acquisitions in that the acquisitions fail to meet desired goals or management pays too much for the acquisition. The company also in effect "went public" through that acquisition. Is this happening to you frequently? In the meantime, management has announced the end of the hedging program. Before that I was an analyst (operations and financial) and for a short time a Controller I have a B.S. There is always a possibility that prices could drop before shareholders see the benefits of new operational techniques or that management was too confident. Management is now raising the guidance shown above due to the stronger than expected commodity prices. The sale of some noncore assets can easily be replaced with a second rig drilling for a short time. Therefore, the amount of receivables from customers also rose along with the prices. Crescent Point management has spent the last few years materially changing the company. I/we have a beneficial long position in the shares of CRGY either through stock ownership, options, or other derivatives. The stock price will respond to steady progress. This has been going on for as long as I can remember and it appears to be continuing for the foreseeable future. That should happen without any extraordinary actions of management. (Note: This article appeared in the newsletter on May 10, 2022, and has been updated as needed with current information.). The problem with a lot of companies that filed was the market often focused on the production decline rate as well as the lack of cash flow in the history. Therefore, the reduction in cash flow may not be quite as significant as some investors expect. Management has decreased the debt ratio to cash flow to 1.0. Crescent Energy Explanation Of Management Choice Of Acquisition Strategy (Crescent Energy Fourth Quarter 2021, Earnings Conference Call Slides). Production growth will allow for a far superior cash flow stream, even if commodity prices drop significantly from current levels. That will increase the ability of the company to retire some debt as the year proceeds. I personally think the Eagle Ford may yet come out on top at the top of the business cycle one more time. Is this happening to you frequently? Most wells drilled in the current environment pay back within months. There is a lot of unconventional and secondary recovery companies with wonderful netbacks both historically and currently that do not have enough production to produce a viable amount of cash flow and profits. But Mr. Market will still want to see that outperformance during an industry downturn. Also, as the company becomes larger, each acquisition will become less material to the company so that recurring operations begin to dominate results. I am not receiving compensation for it (other than from Seeking Alpha). The properties to be sold have some older production that is likely more expensive to produce than the company average. Therefore, that debt ratio is likely to go a lot lower so that it remains conservative at considerably lower prices. Investors should be expecting steady revisions throughout the fiscal year as opportunistic acquisitions are made (and maybe an occasional sale). I/we have a beneficial long position in the shares of REI either through stock ownership, options, or other derivatives. I have a high school teaching credential and an MA in Math Education. Please. This was probably to be expected as the company grew and was able to acquire larger deals. Investors are advised to review all company documents, and press releases to see if the company fits their own investment qualifications. Additional disclosure: Disclaimer: I am not an investment advisor, and this article is not meant to be a recommendation of the purchase or sale of stock. That payback can easily be protected with some hedging should the need arise. Crescent Energy Company (NYSE:CRGY) has made several accretive acquisitions. Management is trying to tell the market that not many can be bothered with these properties. Crescent Energy 2022 Guidance For Costs, Capital Budget, And Profits (Crescent Energy Fourth Quarter 2021, Earnings Conference Call Slides). Note that the operating expenses are on the high side. ), was even better than the first quarter. So, management did not have to choose between growth and debt repayment. The only thing that can happen is too many profits were stated during the boom times. That will leave management a lot of options to grow this company for the benefit of shareholders. And hello cash flow! Organic growth is somewhat down the priority list. To ensure this doesnt happen in the future, please enable Javascript and cookies in your browser. with an emphasis in Accounting and an MBA (for which I studied Finance, Economics, and Management) I passed the CPA exam on the first try and am a retired CPA in the state of Maryland.

I have no business relationship with any company whose stock is mentioned in this article. Older production often has higher lease operating expenses as volume declines. The market awaits the benefits of the company's strategy. Even though geology may usually give the advantage to Permian operators, there is nothing like a good old-fashioned bottleneck in the midstream capacity to completely obliterate that advantage. Management is running the company in a very conservative fashion. Occassionally write articles for Rida Morwa''s High Dividend Opportunities https://seekingalpha.com/author/rida-morwa/research, Occassionally write articles on Tag Oil for the Panick High Yield Report, https://seekingalpha.com/account/research/subscribe?slug=richard-lejeune. But the oil price drop in 2015 followed by the 2019 decline (then came the OPEC Pricing War and the coronavirus demand destruction) has thoroughly disillusioned this crowd. I have no business relationship with any company whose stock is mentioned in this article. That means any investor has to have a fair amount of faith in the ability of this management to do a decent job. The backers of this company generally get involved to make a lot of money or they do not get involved. I break down everything you need to know about these companies -- the balance sheet, competitive position and development prospects. That is combined with the risk of fast growth. So, when this company sells itself, investors will have a good idea that a market top is somewhere in the neighborhood time period. The reason that may happen is that the annualized first quarter cash flow is in the $140 million range. Crescent Energy Organizational Structure (Crescent Energy Fourth Quarter 2021, Corporate Slide Earnings Presentation). The near term was updated with the second quarter report. The big deal is the advantage of entering a market without a lot of competition. That should increase the competitiveness of the Uinta assets. This is a company that probably needs a year of the current prices to really get itself back on track. Disclosure: I/we have a beneficial long position in the shares of CRGY either through stock ownership, options, or other derivatives. Any money obtained from the sales process underway of some noncore leases would rapidly accelerate debt repayment. This idea was discussed in more depth with members of my private investing community, Oil & Gas Value Research. I am not receiving compensation for it (other than from Seeking Alpha). But for Oil & Gas Value Research members, they get it first and they get analysis on some companies that is not published on the free site. Accounts Receivable alone soaked up a fair amount of cash generated in the first quarter because commodity prices rose. At that point, the well is either shut-in until a cyclical recovery ensures better commodity prices, or the well is abandoned because there is no hope of profitability. The hedging program is currently also diminishing results. The company is getting "back on track" with the original plan to convert to an operating company with an optimal amount of production. Please disable your ad-blocker and refresh. ) (Note: This article appeared in the newsletter on May 29, 2022, and has been updated as needed. Naturally the company will spend "first call" capital money on the highest margin area.

Mr. Market usually values what he can see. However, this management is used to building and selling companies. Crescent Point Energy Second Quarter 2022, Change In Adjusted Funds Flow (Crescent Point Energy Second Quarter 2022, Management Discussion And Analysis). The way that management gets deals is because they occupy a niche where sellers far outnumber demand for the "product". Evidently, that is not completely the case as management added some hedges with considerably better pricing. That sort of makes the guidance given during the first quarter earnings press release, conference call, and earnings slide presentation somewhat transitory in nature. Mitigating those risks is the experience of management in doing "deals" and integrating those deals into a combined entity that is more valuable than its parts. Therefore, hedging programs are generally not valued at all by the market. I analyze oil and gas companies like Crescent Point Energy and related companies in my service, Oil & Gas Value Research, where I look for undervalued names in the oil and gas space. Therefore, the gains will come from operating improvements and bargain basement deals. But that dividend is also going to be a very conservative part of cash flow for the foreseeable future. Crescent Energy (NYSE:CRGY) is a KKR backed company with well-known John Goff as chairman.

So that will have priority. That happens to be just fine with this group because they are not shy about naming a bargain price. What has created this opportunity was a bunch of investment vehicles with little to no industry experience "jumping in" when times were good in the hopes of making a lot of money. If you have an ad-blocker enabled you may be blocked from proceeding. The corporate structure is set up to delay the tax consequences of any deal for selling shareholders. The outlook at Ring Energy is very good for the first time in a few years. The company also in effect "went public" through that acquisition. Ordinary maintenance was delayed due to bankruptcy proceedings or seller financial distress. It is, therefore, very easy to justify drilling wells while keeping an eye out for any hint of pricing weakness. All management has to do is fix up the properties acquired and report that they meet budgeted goals. I/we have a beneficial long position in the shares of CRGY either through stock ownership, options, or other derivatives. The continuing low debt ratio also hints at bargain purchases. What would remain unaffected is the early payback of expensive secondary recovery project costs. Therefore, they are very likely to benefit the common investors. This group has long had a history of buying cheap and selling dear. In the meantime, the "shop 'til you drop" attitude is ok as long as the discipline remains in place to ensure relatively fast paybacks of assets purchased. That means this acquisition will payback faster than expected. I am a high school teacher for a decade. But for Oil & Gas Value Research members, they get it first and they get analysis on some companies that is not published on the free site. Mr. Market clearly has some doubts about all of this as seen in the post-merger price.

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long player seeking alpha