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Interesting graph, curious figures

August 18th, 2010 · No Comments

What happens next? In the series trading ideas..

Does this graph (click to enlarge) look like a double, dare we say multiple bottom? We think so.

Some things you want to know about Prime Energy Group (PNRG):

  • They just announced Q2 unaudited(!) earnings (after close)
  • If you want to go into detail, here’s the 10-Q (bit of an aborted version, for the full version go here)
  • Earnings per share seem to have eluded the single analyst big time, the last two quarters. Where in Q1 a loss of 13 cents was expected, the company came in with a profit of 91c! Q2 delivered a whopping $1.68 (where 38c was expected)..
  • So we’re a bit in a bind of what to make of the $1.92 per share expected for the full year (that was already upgraded three years ago from a loss of 15c), since we’re already on $2.59 per share with six months to go..
  • They had $22M cash flow from operations (of which $15.6M was used to repay a loan) and $11.5M in cash and cash equivalents [10-Q p9]
  • Oil and gas production are down in volume (oil just a tad), but this is more than made up by increasing prices
  • “The decrease in oil production reflects properties added during 2009 from our 2009 West Texas drilling program offset by the natural decline of existing properties. The decrease in gas production is primarily due to the natural decline of the offshore properties.” [10-Q]
  • Note also the following: “PrimeEnergy is an independent oil and gas company actively engaged in acquiring, developing and producing oil and gas, and providing oilfield services, primarily in Texas, Oklahoma, the Gulf of Mexico, West Virginia, New Mexico, Colorado and Louisiana.” So we see at least one (probably the main) reason for the poor share price performance the last couple of months. (and indeed they mention it on p17 of their 10-Q)
  • “The Company has in place both a stock repurchase program and a limited partnership interest repurchase program. Spending under these programs for the first six months of 2009 was $415,000. The Company expects to continue spending under the programs in 2010. During the first six months of 2010 the Company spent $1,948,000 under these programs.” [10-Q]
  • Pretty large insider sales early June
  • They do have a new revolving credit facility of $250M with some conditions attached [10-Q p11]
  • They don’t waste time: “In July 2010 the Company entered into a joint development agreement with a Korean consortium to develop oil properties in West Texas. This agreement provides for the drilling of 24 wells (10 net) in the first phase with the option to commence a second phase drilling an additional 10 net wells based on the results of the phase one wells. As of Aug 12th, fourteen of the phase one wells are in various stages of drilling and completion including five wells which are on line and producing. The Company believes the relationship with the joint venture partners may have a significant impact on the growth of the Company activities.” [10-Q p17] Hats off!!
  • The Company‚Äôs strategy in 2010 is to continue to reduce its outstanding debt which decreased by approximately $10,000,000 in 2009 and $10,955,000 in the first six months of 2010. This decreased leveraged position will better provide the Company the ability to participate in a significant acquisition, should the opportunity arise this year. [10-Q p17]

In short, although we’ve not seriously kicked the tires (we have no handle on their energy resources, for instance) but on the basis what we’ve read so far and especially the chart, it certainly is an interesting play.

Tags: Technical Trading Ideas