Sdx Energy Share Discussion Threads

[darola] 04/1/2019 13:23

Bought back in this morning and it’s nice to see yesterday’s rise continue. Bid price not accurate at the mo, just offered 42 to sell. Be interesting how TSX responds.

[thegreatgeraldo] 04/1/2019 13:05

APAD
4 Jan '19 - 12:10 - 7299 of 7302

Do you have a view about S. Disouq waiting on some .gov paperwork?

..I've got a view on S Disouq. The full story from PW would be more interesting though....

[captain james t kirk] 04/1/2019 12:43

I think the only bit I'd question is the final part of this:)
"HUR has no positive cashflow, makes no profits and pays no dividends. But its potential is gigantic - possibly a billion bbls of recoverable oil or more - and in a politically stable region."

[tournesol] 04/1/2019 12:36

APAD

no, just think that SDX has been significantly oversold and there seems to be a breath of wind stirring its sails at the mo. I'm underwater on my earlier purchases so today's top up brings me back to the position size I was at the outset.

[apad] 04/1/2019 12:10

Not a bad move, I reckon.
Do you have a view about S. Disouq waiting on some .gov paperwork?
I might be misremembering. Something from a Cube interview perhaps.
Hey Ho.
apad

[tournesol] 04/1/2019 12:05

Coming back to the main topic, I topped up this morning.

:~)

[apad] 04/1/2019 11:59

Tournesol - good posts. Ta.

Re your post:
tournesol - 12 Dec 2018 - 11:03:54 - 36167 of 37587

Daughter is a Mark Warner manager. It's all around the office.
apad😊

[tournesol] 04/1/2019 11:44

drewster and rosannan

Sorry, I was not dismissing cash flow and profitability - they are obviously important in all businesses - but see below. I was focussing on the metrics that are specific to E&P.

Whilst cash flow and profitability are always important - they tell you nothing about assets which are pre-production. For many if not most E&Ps that means most or all of their assets.

I think your preferred metrics might be useful in assessing the majors - Shell, Exxon, etc. But not so in dealing with the smaller exploration weighted companies like HUR, PMG, SDX which have zero production or levels of production which are trivial compared to their reserves/resources base and/or their exploration potential.

Compare SIA with HUR. SIA has good cashflow and is profitable and pays dividends. But its assets are relatively limited in potential and lifespan. Its low p/e does not mean it's a bargain, it means the market clearly perceives its limitations.

HUR has no positive cashflow, makes no profits and pays no dividends. But its potential is gigantic - possibly a billion bbls of recoverable oil or more - and in a politically stable region. It's lack of cash flow means it has no meaningful P/E ratio at all. That does not tell you anything about its value or its potential or the view of the market.

I used to work in E&P and have had an investment focus on E&P for 30 years. I don't think I've ever encountered an E&P - or an integrated major for that matter - where the E/P was a useful metric. There have been a few producers (ie without exploration) for which p/e might have had some validity, but even there that ratio means nothing unless you understand asset life-span and depletion and asset valuation was always much more directly relevant.

But having said all the above I'm not going to keep banging on about it. If you want to apply p/e ratios then you don't need my consent.

[the drewster] 04/1/2019 10:48

You can't ignore discounted cashflows tournesol.

Exploration spend needs to generate a return ... ideally a profitable one.

[tournesol] 04/1/2019 10:15

Matchmade

The best metrics for E&P are not alas commonly/easily available. You have to work to get them.

Best IMHO are

> enterprise value per bbl of reserves/resources - how much is an investor paying to get each bbl of reserves/resources?

> enterprise vale per bbl of production - how much is an investor paying to get each unit of production (not a zillion miles away from P/E)

> sum-of-parts valuation of assets based on typical value of oil in ground in relevant region - estimate of realisable value if produced

> sum-of-parts valuation based on actual transactions involving asset sales - estimate of realisable value is asset sold

> reserves depletion/replenishment rate - tells you how long it's going to last

[matchmade] 04/1/2019 10:05

Tournesol - your argument is persuasive, but rossannan's point above also needs to be taken into account. What commonly-available metrics, if any, do you then suggest PIs should use to help them assess under/over-valuation of different E&P companies, in oil and gas and other resources?

[homebrewruss] 04/1/2019 09:57

Thanks tournesol.
What if they are/were throwing off loads of cash though as well as having a low p/e and all still have plenty of resource eg. RRE which has a p/e around 1 and is therefore now generating it's own market cap in cash every year?

[tournesol] 04/1/2019 09:50

small holding

We are discussing whether P/E has any predictive value to help identify pricing anomalies and likely future price movements and to provide a basis for comparing and contrasting different companies.

Your example does not speak to that. It is an exercise in retrospection.

What I am trying to get at is that an E&P company with a P/E of X is not not necessarily twice as good at value generation as a second co with a P/E of 2X, and the relative valuation of the two has no correlation at all with their respective P/E ratios.

Look at PMG and HUR. HUR has no revenue at all because it has not started producing. It does have a gigantic project about to start proof of concept testing. PMG has a tiny amount of production but a decent sized project in gestation. The two companies are chalk and cheese. SDX has more production than either but is in a very very different situation. Would it help us to compare and contrast the P/E ratios of these three totally different companies, which are following radically different strategies in very different regions? No. Not even a little bit. I am invested in all 3 and know them moderately well. I would not be able to derive any useful intelligence whatsoever from their P/E ratios.

Using the P/E ratio to value an E&P is like using a hammer to tell you which ice cream tastes best. It is the wrong tool.

But hey, if you want to use it, then be my guest.

T

[small_holding] 04/1/2019 09:32

tournesol - "The P/E ratio simply tells you how fast they are depleting their limited reserves and how soon they will be worth zero."
That is just plain wrong
If SDX doubles in value today, tomorrow the reserves are virtually the same, the rate at which they are depleting those reserves doesn't change yet the P/E will have risen significantly.

[tournesol] 04/1/2019 09:22

Imagine 2 E&P's

They both have 100 million bbls of reserves

One of them is producing 5 million bbls a year in a politically secure, low tax environment. They have a history of upgrading their reserve base and have several million bbls of 3P reserves which might get upgraded into 2P and a lot of resources which might get upgraded to reserves.

The other is producing 10 million bbls a year in northern Iraq in a Kurdish controlled area about to be attacked by Turkey. They have a history of downgrading their reserves into resources and of reducing the size of the reserves/resources base. Their receipts from the government are unreliable and receivables outstanding are growing.

What would a comparison of P/E ratios tell you about their relative merits?

[tournesol] 04/1/2019 09:15

Rosannan

of course its simplistic

P/E is a simplistic metric

it has nothing whatsoever to tell us about the valuation of E&P companies

in fact less than nothing because it muddies the water and confuses those who use it perfectly well in other sectors of the market.

[the drewster] 04/1/2019 08:50

tournesol - despite spending my working life in IT, I am a qualified accountant ... the point I was trying to make (clearly badly) is that SDX could easily generate their entire market cap in earnings in 2019.

[tournesol] 04/1/2019 08:28

Drewster

P/E ratio is not a metric that can ever be applied to any resource extraction company - oil or mining.

When a retailer or a manufacturer does its thing it converts stock/raw material into sales and thereby adds value. All being equal it can keep doing that for a thousand years. Its P/E ratio indicates the efficiency of its wealth generation.

When oil/mining companies monetise their reserves they are simply converting finite and irreplaceable mineral resources (which have a defined value) into cash (which has the same value). Once they finish doing that they have nothing left. The P/E ratio simply tells you how fast they are depleting their limited reserves and how soon they will be worth zero. It tells you nothing about their wealth generation.

To measure the value of such companies you need to concentrate on their reserves/resources and on the cost/efficiency with which they are acquired/found/exploited. The P/E ratio does not measure any of those things.

[the drewster] 04/1/2019 08:11

PE for 2018 must be less than 2 extrapolating Q3 rns, and assuming no political nightmares getting South disouq approvals, 2019 will smash 2018. There is huge potential upside here.

[ifthecapfits] 04/1/2019 08:08

to match canada?

[daler1966] 04/1/2019 08:06

No trades and up 5.4% ?

[potential] 03/1/2019 18:29

I stuck to my guns pal and righty so!! Many intellects amongst us bought in at the ridiculously low share price and will be thanking me when we hit 72p again- you might want to keep a record of this message too and bring it to the table when we're closer to my figures pal :-) 2019 will be transformational for SDX and I don't shy away from saying so! Happy new year to you all -)