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GMXR Preferred Redux

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February 21, 2013 – Comments (18) | RELATED TICKERS: GMXRQ.DL

Last year I wrote a blog about GMXR Preferred.  See here:

http://caps.fool.com/Blogs/gmxr-preferred/701427

Since then it kept paying its dividend and the stock was floating in the $14 range.  The company sold some assets and used the proceeds to payoff early maturing notes and swapped out for later ones.  They then did a reverse stock split in order to get its common price back up.

Things seemed to be going fine then all of a sudden come this Tuesday the company got taken to the woodshed.  Reading through the newslinks the only thing I could find is the company  is still short on funds for its 2013 capex, but it has grown its funds and production and is sitting on about 35.6 million BOE proved reserves.  I guess what then caught other people's eyes was this:

"The Company is continuing to explore and evaluate options for its capital needs, as well as continuing to evaluate and finalize its 2013 budget for capital expenditures based on its available liquidity. In connection with its evaluation, the Company plans to retain a financial advisor to assist the Board and senior management in its ongoing exploration of a variety of financing alternatives, including a potential restructuring of the Company's balance sheet in light of its current liquidity and cash needs."

So then the rumors of BK hit and the shorts came out in full force just crushing the longs. Shades of ATPG. But if one actually runs the numbers this company is sitting on $30 million with only 6 million common outstanding.  That is $5 cash per share.  Their debt has been knocked down to about $400 million.  Even on a firesale I have to believe their reserves would more than cover this debt.

So I bought some more preferred in the low $10 range. It closed over $11 but that is still a nice rate of return.

Actually if they liquidated, the preferred would be paid $25 a share since I see only excess funds left over for even the common.  And if they sell some more assets off to improve liquidity you still are getting a great yield.

I would only use speculation money here.

18 Comments – Post Your Own

#1) On February 21, 2013 at 8:58 PM, Mega (99.96) wrote:

"Even on a firesale I have to believe their reserves would more than cover this debt."

"Actually if they liquidated, the preferred would be paid $25 a share since I see only excess funds left over for even the common."

Tangible book value is now negative. 

Can you name one oil & gas company where they successfully turned around from negative equity? I think 99% of the time they go bankrupt.

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#2) On February 21, 2013 at 9:14 PM, HarryCarysGhost (99.69) wrote:

This is what I was able to find on the web, (you were the 3rd yahoo article:)-

http://caps.fool.com/Blogs/atpg-preferred/759754

Did they ever end out paying to the preferrds?

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#3) On February 21, 2013 at 11:23 PM, awallejr (83.86) wrote:

#1 well with 35+million BOE even at $20 on the barrel that is more than enough to pay the 2017 debt plus.

And Harry, no ATPG preferred is pretty much worthless at this point.

Yes there is risk that is why you can yield want you can here.  Sometimes no guts no glory, other times better safe than sorry.  Your choice in the end, I just mention the option.

Personally I went no guts no glory.

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#4) On February 22, 2013 at 9:58 AM, awallejr (83.86) wrote:

And as a further response Harry, ATPG I suppose has a glimmer of hope still for the preferred at least. But the main difference between these 2 companies is the management.  ATPG really was run by a bunch of incompetents and a criminal investigation should be launched in my opinion.  They still don't have their Clipper wells producing which was suppose to happen in December 2012.

With GMXR they got nailed by the price crash of Nat Gas and made the strategic move to go Oil.  That takes time and they seem to be succeeding at the switch.  They lowered their debt dramatically and extended it out to 2017.  They even hedged their production which might prove wise if oil keeps dropping.

Actually BK probably would make everyone a nice profit and might be a company Gordon Gecko would take a look at. But I just think this is a short attack and nothing more.  So a speculative opportunity.

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#5) On February 22, 2013 at 12:18 PM, Mega (99.96) wrote:

"#1 well with 35+million BOE even at $20 on the barrel that is more than enough to pay the 2017 debt plus."

Are there any indications anyone is interested in buying those 35M BOE (outside of bankruptcy)?

ATPG equity holders had pretty much exactly the same thought process.

With the current cash burn rate, they are going to run into trouble paying the debt and preferred interest a long time before 2017.

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#6) On February 22, 2013 at 4:54 PM, Tagit (55.98) wrote:

I would rather gamble with FST

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#7) On February 22, 2013 at 6:23 PM, awallejr (83.86) wrote:

#5  Well they did sell some of their Nat Gas holdings last year to reduce its debt load.  They are a much different company than ATPG.  Being a Bakken play is a lot different than deepwater.

Actually I think GMXR may be worth a lot more dead than alive.

And #6 this is a dividend play with a potential to more than double.  And so far they have paid the dividend and unlikely they would stop since it is only about $1.5 million a quarter.

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#8) On February 22, 2013 at 7:52 PM, Valyooo (99.41) wrote:

awallejr,

 

don't bother arguing with megashort.  even though I agree with him for maybe the first time ever, he doesn't look at anything other than tangible book value, ever.  Which is why he's probably perplexed why for years, junk bond etfs have been going up even with trading 50% ove NAV....11% yield, nobody cares about NAV. 

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#9) On February 22, 2013 at 8:27 PM, Mega (99.96) wrote:

So you agree with me about GMXR ... but you just want to pick a fight?

Check out the scorecards for CRF, CLM, PGP and PHK, the CEFs that were trading at huge premiums to NAV. My thesis has been 100% correct.

http://caps.fool.com/Ticker/crf/Scorecard.aspx?pagenum=1&filter=0&pageSize=99&sortcol=5&sortdir=1 

http://caps.fool.com/Ticker/clm/Scorecard.aspx?pagenum=1&filter=0&pageSize=99&sortcol=5&sortdir=1 

http://caps.fool.com/Ticker/PGP/Scorecard.aspx?pagenum=1&filter=0&pageSize=99&sortcol=5&sortdir=1

http://caps.fool.com/Ticker/PGP/Scorecard.aspx?pagenum=1&filter=0&pageSize=99&sortcol=5&sortdir=1 

I've explained this to you before, but the NAV of a CEF and the tangible book value of an operating company tangible book value are completely different concepts.

CEF NAV is a very precise measure of value. Tangible book value for an oil & gas company is an imprecise measure, which is just a starting point before digging into reserves, cash flows, etc.

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#10) On February 22, 2013 at 8:43 PM, Mega (99.96) wrote:

By the way awallejr, when I comment on this blog I'm not trying to win an argument with you, I'm just offering my thoughts on the investment thesis.  I hope that GMXR preferred is a successful investment for you.

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#11) On February 22, 2013 at 9:49 PM, awallejr (83.86) wrote:

I didn't think we were arguing nor was I picking a fight.  I welcome commentary.  I am just trying to point out a speculative opportunity some may want to consider.

Commodity plays can be tricky to evaluate. I suppose this could be ATPG all over again for me but this management team just seems way different.  I don't think they are scammers like TB of ATPG is in my opinion. 

They have a lot of drillable acreage.  They realized that nat gas wasn't worth the effort at current prices so they shut in their wells.  They then decided to concentrate on the oil wells.  They did some sales of nat gas acreage and did debt swapping with nice success.  They are growing their production.  They have made what I think are sensisible hedges.  They grew their cash, but yes they might have a capex liquidity problem which they acknowledged and are trying to address.

ATPG has a clear debt problem now mainly because they are a bunch of incompetents that outsourced their work.  Clipper still not on line producing is inexcuseable.

GMXR really doesn't have a debt problem on the other hand.  Since they are trying to push the oil wells hard they have a liquidity issue.  With Blackstone behind them I suspect it will work out.

I am no expert in the field of evaluating reserves but over 35 million proved BOEs should more than offset their debt plus preferred buyouts (estimated cost at around $500 million) with plenty left over for the common. Remember there are only 6 million common shares outstanding.

I could sell tomorrow at a substantial profit but I still like the play. Just giving others a headsup opportunity.  Again with the understanding that it is speculative.

Now for something not speculative PVR at $22 is a great buying opportunity. 10% distribution yield.  Company is transforming itself nicely away from coal and into fee-based midstreaming.

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#12) On February 24, 2013 at 2:05 PM, TMFDeej (99.33) wrote:

Interesting post awaller.  Thanks for sharing.  I think that I've had enough of risky preferred stocks in E&P companies after rising a small position on ATPG Preferred all the way down ;).

I need to look at PVR more though and love the idea.

Deej 

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#13) On February 24, 2013 at 3:44 PM, awallejr (83.86) wrote:

Lol I understand there Deej, it is also why I do warn people of its speculative nature.  I did get a year's worth of dividends off GMXR and have a stop loss so no matter what happens I will have made money.

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#14) On March 01, 2013 at 11:08 AM, Zundels (96.52) wrote:

Looks like GMXR is having a great day. Nice timing on the post.

 

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#15) On March 01, 2013 at 6:18 PM, awallejr (83.86) wrote:

So far so good.  I am amazed at the volume in the common today.  6 million total shares and almost 5 million traded in one day, all on no real news.

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#16) On March 04, 2013 at 12:30 PM, awallejr (83.86) wrote:

Well I got stopped out this morning.  Made decent money overall.  I am not sure how to proceed otherwise except take my profits and move on.  I bought some more PVR with the proceeds.

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#17) On April 06, 2013 at 3:22 PM, awallejr (83.86) wrote:

Lesson learned from ATPG.  Glad I stopped out when I did.

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#18) On April 23, 2013 at 10:12 AM, Mega (99.96) wrote:

http://www.reuters.com/article/2013/04/01/gmxresources-bankruptcy-idusl3n0co1y920130401?RPC=49

MegaShort wrote: "With the current cash burn rate, they are going to run into trouble paying the debt and preferred interest a long time before 2017."

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