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Anybody Have An Opinion On This New Oil Stock?????

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2 years 3 months ago #1 by johnjohn
I picked up a mess of Silver Run Acquisition today. They just IPOd about three weeks ago at $10 a unit. They are still trading as units that will split into stock and warrants soon.

The former EOG chairman and CEO has come out of retirement to run this new oil and gas company, the sole purpose of which is to acquire oil and gas assets in the current buyer's market.

finance.yahoo.com/q;_ylt=As_glRpfOjBacBo...bGsDc3JhcXU-?s=SRAQU
The following user(s) said Thank You: NathanEgger

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2 years 3 months ago #2 by tankumo
It might be a bit too early, I think many oil companies will fall, for now the stock price may follow price of oil.

If you read this article it says the fallout is going to be felt!

www.safehaven.com/article/40874/canadian...tors-sound-the-alarm

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2 years 3 months ago #3 by johnjohn
Hi Tankumo,

This company is pure cash right now, about 500 million. So lower oil prices, and oil companies going bankrupt will greatly help them to buy oil assets on the cheap.

Once they actually spend most of their cash on distressed oil assets, then of course lower oil prices will hurt them, but so far they haven't spent any of their cash.

Perhaps they are just waiting for more blood in the streets before they spend their initial seed money, and once they do spend it all, they'll probably do a secondary share offer to get more cash to buy more distressed oil assets.

I like their business model, and I would like them even more if they can grow over time, and remain completely debt free.

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2 years 3 months ago #4 by tankumo
Understood.

That's why I don't know if it is a good idea to get in now, because if hell breaks loose everything related to oil goes down, including this one.

Investors and speculators will sell first and ask questions later, so this $500 million cash company will go down in sympathy, like getting caught in a cross fire.

I don't think it will go down a lot, but I am always a lousy market timer and don't know when to get in if it falls.

Do you own US oil trusts, such as PBT, SJT, CRT, BPT.....? They seem to do well if oil rebounds and they will also pay good dividend.

The problem is they have more complicated tax reporting requirements and they also have limited reserves.

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2 years 3 months ago #5 by johnjohn
tankumo,

I think you are probably right that this stock will drop some if oil gets hit hard. But, if that happens, I'll just ride out the storm by holding it.

On the other hand, if they announce some good deals, this thing could easily double so I'd rather own it now than wait for a possible lower future entry point. And if they do get hit with an oil downdraft, I can always average down on them.

Yes, I own a little PBT in my IRA. They have cut their payouts quite a bit, but they'll raise them again when oil/gas prices rise again of course.

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2 years 3 months ago #6 by tankumo
John, I have a question regarding American trusts like PBT, SJT, BPT, CRT.....etc.

I found them 20 years ago, how come they can keep pumping oil forever? Even now they can still produce healthy amount!

They can't buy new oil properties, and yet their oil reserves seem to be unlimited, can you explain?

Thanks.

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2 years 3 months ago #7 by johnjohn
Tankumo,

I'm certainly not an expert, but I would guess that they had good properties with enough drilling locations to last for over 20 years, plus low decline rates on their wells. And of course the shale technology revolution has probably greatly increased the number of economic drilling locations on their properties.

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2 years 3 months ago #8 by tankumo
John, I found some American trusts article you may find useful, but some trusts may terminate soon, so I might follow mcdep.com, the Kurt guy followed some American oil and gas trusts, they should last a while. PBR seems to be able to last a long time, but I will still wait for oil prices to go lower.

mcdep.com/7mr160315.pdf

www.fool.com/investing/general/2014/06/2...-royalty-trusts.aspx

www.dividendyieldhunter.com/us-royalty-trusts

As always do your own dd, even experts can be wrong.

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2 years 3 months ago #9 by johnjohn
Hi there tankumo,

Thanks for the links. I follow the free research at mcdep.com myself, and I find it quite useful.

I wouldn't be too sure that oil prices will be going lower though as the manipulation boyz are holding up both the stock markets and oil prices. I suspect they'll hit gold/silver though and take them down a few pegs in the next month.

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2 years 3 months ago #10 by MichaelMedici
Replied by MichaelMedici on topic Anybody Have An Opinion On This New Oil Stock?????
I know this reply is a little late, but I just wanted to clarify hat Silver Run is not actually a Royalty Trust as discussed above. Rather, it is a SPAC (Special Purpose Acquisition Corporation).

SPAC's essentially raise a given amount of money (in this case $450 million) through an IPO (45MM shares at $10 per share). They then have a certain amount of time, most often 18-24 months, to make an acquisition(s) of net assets that equal a value greater than or equal to 80% of their capital. If they are unable to do so, the initial capital is returned to the shareholders.

So, in essence, buying in at today's price would be paying a premium of 50 cents on $10 dollars of cash, in expectation of Silver Run making accretive acquisitions of a value greater than $360 million over the next ~2 years. If not, you will receive your $10 dollars i(less costs of running the SPAC over 2 years, so maybe $9) in cash at the end of the 2 years (you think of this as a put option with a breakeven at $10-(cost/share) if that helps).

Silver Run is headed by Mark Papa, a very highly regarded name in the industry, so you are basically betting on him and his management team to make quality acquisitions.

This is in no way investment advice, just thought I'd explain how this structure actually works to help you make a more informed decision and guide your expectations/timeframe for the investment.

In regards to how trusts can keep producing, the reason is that most assets packaged in trusts are done so because they are mature fields, that is they are far along in their decline curves and are producing a consistent number of barrels that decreases at a much, much slower rate than a shale well that has recently been drilled and completed.

This is done on purpose: it gives investors a clear idea of the cash flows they can expect over the life of the trust as there is much more visibility into the amount of oil being produced and how long it will last (after a certain number of years the trust dissolves).

This is also the reason trusts have been so affected by the downturn in prices. Because they aren't drilling a significant number of new wells, their production can't increase to match the cash flow decrease caused by the decline in oil prices (cash flow = barrels x price/barrel - costs). So, where most companies (and countries like Saudi Arabia) will increase their production to try to keep cash flows up, trusts do not have this option. As price declines their cash flows decline, and thus the amount of cash flow attributable to each share of the trust declines, taking the price with it.

Let me know if you have any questions or anything I said was unclear!

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1 year 11 months ago #11 by johnjohn
It looks like this outfit might finally be using some of their cash for a position in the Permian Delaware Basin, but the details are still pretty sparse.

www.reuters.com/article/us-silver-run-ac...ennial-idUSKCN0ZZ27V

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1 year 11 months ago #12 by johnjohn
This looks like a good deal to me as they will start out as a debt free pure play in the core of the Delaware Basin.

finance.yahoo.com/news/silver-run-acquis...quire-100000095.html

www.sec.gov/Archives/edgar/data/1658566/...16-15339_1ex99d2.htm

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1 year 11 months ago #13 by tankumo
John, Erik just put out a link to Berman's oil article, after reading it I feel that oil has some room to go down.

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1 year 11 months ago #14 by johnjohn
Hi Tankumo,

Yes, oil can and has been dropping again, but we know that it can also turn around very quickly.
And while oil prices have been dropping lately, SRAQU is still moving higher so I'm comfortable holding on to my SRAQU investments.

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1 year 11 months ago #15 by tankumo
SRAQU is different story, lower oil prices may actually be good for them!

I still think we can see lower oil prices, but how low I don't know, I prefer uranium now.

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1 year 9 months ago #16 by johnjohn
With their first acquisition complete, they are now a regular low cost debt free oil and gas producing company trading under symbol CDEV, and the warrants trade as CDEVW. Shares and warrants look fully valued here, but I expect them to move higher over time with Papa running the company.

Here's their website:
www.cdevinc.com

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