Why would anybody want to invest in independent oil and gas?

The current situation doesn’t make a lot of sense to me.  The management teams at these companies don’t give investors enough information to value the assets.  I think that investors would demand such information.  They should know the historical and projected decline curves of their company’s assets (for each basin the wells are in).  This is very basic information that investors need to perform their due diligence.

Another way of looking at it is to examine how a private market buyer would perform due diligence.  When an oil and gas company wants to sell its assets to private market buyers, it typically opens a data room.  I’m sure they provide a large volume of technical data far beyond decline curve data (e.g. reservoir models, data on porosity, pressure, 3-D seismic, etc. etc.).  Institutional investors and analysts simply don’t perform that level of due diligence.

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Canada Lithium / Sirocco merger

In my opinion, the announced merger makes a lot of sense for Canada Lithium and not a lot of sense for Sirocco Mining (TSE:SIM).  I’m incredibly bearish on Canada Lithium and think that its mine will be uneconomic in its first year of full commercial production.  Peter Secker (Canada Lithium’s CEO) has made an incredibly smart move by merging Canada Lithium with Sirocco.

New long and short positions Dec 2013

New positions I have initiated without doing thorough research.  (I’m not kidding when I say that I haven’t done much research…)

Rex Energy (REXX)

Rex Energy is a $1B independent oil & gas company.  In many ways it is similar to other independent E&Ps (mediocre track record of value creation/destruction, high insider pay, constantly raising capital, etc. etc.).  Its most recent secondary offering was a year ago in 2012 when it sold shares for $9.25/share (for proceeds of $8.81 before dilution from the over-allotment option).  The current share price is $19.07.

While its balance sheet is not as deceptive/aggressive as Miller Energy or TransGlobe Energy, Rex has large liabilities that look a little suspicious.

The trade is a little crowded as 15.6% of the float is sold short.

Spinoff situation: Harvard Apparatus Regenerative Tech

HART is a development-stage company that has successfully grown replacement tracheas (airways) out of a patient’s own stem cells.  These replacement tracheas are then transplanted back into the patient’s body.  This is a huge improvement over the traditional method of transplanting a donor trachea, which requires the patient to be on expensive immune-suppressing drugs that shorten their lifespan and have other complications.

HART has a market cap of $38M ($4.77/share).  At the time of the spinoff, the company had $15M in cash and had spent around $16.5M developing its technologies so far ($31.5M in total).  Given the risks in developing this technology, I believe that this spinoff may be undervalued.

Casimir Capital Round 2

This is a continuation of my original post on this small investment bank that has underwritten a lot of junk.

Altisource / Convincing ex-homeowners to leave

Altisource has uploaded its Analyst and Investor Event presentation slides to its website.  The most interesting presentation is on “Innovations in Consumer Analytics” (PDF).