WEBVTT
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This week I'm the young idea.
We look at a contrarian idea on range
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resources and natural gas producer that has
had a tough go of it for the
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last five years. CACI Research Limited, argues that the company has corrected its
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mistakes and that the market will be
forced to recognize its value soon enough.
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Natural gas is a commodity, of
course, and that leads to me wondering
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about how to succeed in the industry
as a whole. They I don't think
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anybody would call natural gas is steady
business. You know, with natural gas
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prices going down. That would be
a concern to me, and so the
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less I have to be behold into
somebody else, the more I can wait.
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Until other natural gas producers are shutting
down, until supply saws down or
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until demand picks you just keeps you
at the table, so I like that.
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Meanwhile, this discussion leads Mike to
Wonder about seeking Alpha's author's risk tolerance
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rit large. It's possible that seeking
out, the authors in particular, represent
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a more risk tolerant, or even
risk seeking group than the market as a
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whole. There's no doubt that range
rejoice. There's no doubt that range resources
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is a contrarian pick compared to the
market trend, but it's also a quite
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popular one among authors on Seeking Alpha. What to make of that quandary and
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how does it given commodity pick stand
out? We discuss on this week's behind
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the idea. Welcome to behind the
idea. I'm down, Frans, and
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I'm like Taylor's. This week we're
looking at an idea ACI research limited posted
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in July on range resources. Take
her symbol. Our RC range resources and
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independent natural gas, natural gas,
liquids and Oil Company primarily focus in the
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Appalachian and North Louis and of resugents. The company has been a favorite of
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seeking Alpha authors for a long time, but the market is felt otherwise for
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just as long as anybody who has
looked at a five year chart could say.
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K Ci Research Limited takes a contrarian
view, arguing that the company is
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just too cheap to ignore, trading
at a fraction of tangible book value while
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producing free cash will over the last
twelve months as well as positive net income.
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It would seem there's an argument here. So what gives with the stocks
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performance? With five years of nearly
straight down into the right trading, which
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has persists to through the last few
months. will discuss on this week's behind
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the idea before we begin. Yin
The idea is the podcast that looks at
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what makes great investment analysis work,
based on ideas from the seeking Alpha ecosystem
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and books by Joel Greenblatt. Neither
Mike nor I have any positions and any
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stocks we expect to discuss, because
we don't really invest in energy. Nothing
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on this podcast should be taken as
investment advice of any sort. And everyone,
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I'm here to remind you that behind
the idea is brought to you by
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seeking Alpha proplus. PROPLUS is seeking
Alpha's premier subscription offering, which provides subscribers
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with exclusive access to seeking Alpha's best
research and real time alerts to talk quality
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00:03:36.129 --> 00:03:40.639
analysis, as well as software tools
like our idea filter and screening tools to
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help you find the best research our
platform has to offer. To check out
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00:03:49.199 --> 00:03:54.199
pro plus, with a thirty day
money back guarantee, go to seeking Alphacom
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proplus. That seeking alphacom pro O
plus. Daniel. Do we have anything
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else to discuss before we dive in? Well, I we can say that
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proplus does cover energy. So anybody? I'm just looking at my proplus feed
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and there was an oh yeah sent
out on energy yesterday. Yeah, with
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all the with all the bankruptcies and
challenges that many energy companies face, there's
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actually a special proplus vertical devoted to
small and micro cap situations. Many energy
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companies become small and micro caps on
their way to extinction, and for that
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proflus has you covered, proplus.
But seriously, proplus has a special vertical
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devoted to oddball stock special situations and
microcaps, including bankroptcis and bankroptcy securities and
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the opportunities available there. So it
is a good tool for checking out some
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of the more distressed aspects of energy
investing. So maybe a fitting. The
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last thing before we get started.
We got a new review that I wanted
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to share. It happened during our
green bladder. POLOOSA got a review from
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gk underscore minute d titled Interesting and
Fun for Stars Out of Fun Right Right
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now. A four out of Florence. Actually, the review reads. Longtime
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Listener, I quite enjoy the banter
and the attempts to get to the bottom
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of an investment thesis from different perspectives. I appreciate that they call bs on
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the growth at all costs narrative.
Only criticism would be that they come across
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as Perma bears, which, admittedly, they do acknowledge. Well, gk
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Manu D, thank you. That's
yeah, that's kind generous. I would
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go so far as to say that
that feels like a generous review, especially
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in light of my comments about bankruptcy. Fair enough, I wouldn't say that
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we're permote. There's like the sky
is always falling where we are trying to
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be skeptical and trying to probe and
stress test, but I mean, I
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know I've ended up investing in ideas
that we've covered on this podcast at some
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point or another and I was delish. Yeah, yeah, but I think
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we're going to sound pretty Barish today. Yeah, unfortunately for GK MINUDI and
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other listeners who dislike our Barishness,
we're going to have a tough time here
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with range resources. So might maybe
we should just get into it. Yeah,
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do you want to take a first
crack at this? I know we're
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trying to talk before the show and
wrap our heads around the idea what Casey
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I research is trying to do and
what's going on. We want to take
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a first cut? Yeah, I
will take a stab at it, and
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this is shout out to all our
listeners who came with us on our kinder
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Morgan Adventure, where we assessed an
opportunity in kinder Morgan shares similar type of
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COMP company, especially with respect to
the fact that range resources has substantial natural
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gas and natural gas liquids operations,
and also similar in the fact that Daniel
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and I seem to get in a
bit over our heads when we try to
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discuss energy companies, and our listeners
like to let us know when they feel
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that we've done that. So just
a fair warning ahead of time. As
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we go into the discussion and the
comments here. We both readily admit that
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we're not energy specialists and we're here
to have fun trying to examine an understanding
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idea. As our most recent reviewers
said, we attempt to get to the
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bottom of an investment thesis from different
perspectives. So keep that in mind.
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But nothing ventured, nothing gained,
especially in the stock market. Am I
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right? Well, that's risk parody
and all that stuff. Yeah, so
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we're going to do some huge risk
parody here. I'm levering way the heck
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up. Let's hear hard and so
okay range resources. The crux of the
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argument, I think the CACI research
is making, is that the markets really
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been punishing the stock. The headline
is too cheap to ignore and this is
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just an overdone down draft to the
downside for the share price. That's really
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the you have situations, you know, where it's a healthy company and the
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market is pricing it as though it's
healthy and you kind of look at the
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situation you say that optimism that the
market is already priced the company for is
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still too pessimistic. The company is
valued at a at an attractive, at
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a sort of rich valuation, but
I am optimistic about the health of the
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business and the profitability and all that. Well, we have here is a
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kind of inverse of that, where
the stock price is just simply so low
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that even if the company is kind
of bad or unattractive or undesirable, we
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still are forced to examine the opportunity
simply based on the valuation at the market
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is inferring about the company relatives to
its fundamental so that's the big picture umbrella
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thing. I think Casey, our
research is saying this is too cheap to
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ignore. But then there's more meat
on the bone than just that, of
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course, or we wouldn't be doing
the idea on behind the idea, and
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that's basically that. There are specific
reasons why the market has punished the company.
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One is that they made a bad
acquisition a couple years ago, two
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thousand and sixteen. That didn't work
out well for them, but they sort
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of digested that and management has now
shifted focus away from growing the operations,
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growing the asset base and becoming inquisitive
of assets and instead focusing on maintaining current
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operations and, when opportunity presents itself, monetizing its assets through sales and divestments
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and then transferring the cash that's generated
from those transactions back to shareholders. So,
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in light of that, I think, if I were to summarize,
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it's a CACI research as saying the
the market is still punishing this company as
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though it's primed to grow its asset
base and make additional acquisitions that are undesirable
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and won't create additional value for shareholders. But in reality the strategy is now
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shifted and the there will be less
emphasis on growth capacs going forward. The
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company will try to contain its maintenance
cat bacts and that shift in reduction of
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capital expenditures will generate incremental value that
can then be transferred to shareholders. How
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do you think I did, Daniel? I think that's the guts of it,
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really is. I think that they
have the guts of it. No,
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I mean, look, it's this
is not. We should mention the
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author, Casey I Research Limited.
That stands for cold this contrarian investments limited.
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The author runs a marketplace service called
the in Contrarian, which is,
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I should say, with my market
place had on, a popular one,
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but it's a it's a style that
is about picking out sort of what you
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were saying at the beginning, these
very much unloved stocks that could potentially rebound
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significantly, and so I think that's
the thesis here, is that there's a
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lot of you look at the book
value and the book value essentially comprises of
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their natural gas resources, right or
I guess that's obvious to say it's natural
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gas company primarily, but that's the
their book value is something like four billion
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dollars. They trade for one point
two market cap and if you look at
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their late is tank, you,
I think they're valuing the natural gas properties
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at something like nine point one.
Natural Gas and oil properties at nine point
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one billion after depletion in depreciation.
So the story is that they have these
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supposed assets that they can, they
need to convert into something more liquid,
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something more marketable, and if they're
able to do that at a reasonable cost,
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and right now they are, there's
some evidence this growth to maintenance.
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We will get into I think,
because that always can be fuzzy. But
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they're they're living with it within their
means. Now, if you define their
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means is operating cash flow, they
are actually keeping positive free cash flow.
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The author says they're cheap. Anyway
you look at it, and I sort
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of in my head before the cause
snarkily thinking about all there must be some
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way, because the author didn't give
us a ton of metrics, just gave
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us the tangible book value. But
it does look pretty cheap. Ev if
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it the number we report on seeking
Alpha is under for the price to free
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cash flow is about nine eight point
seven. I think my math showed those
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are you know, there are other
issues here. There's the balance sheet and
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there's the fact that we're still commodity
exposed, but that's that's intriguing. And
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then there is the argument. So
the arguments fairly straightforward. The the element
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that's a little bit more nuanced and
you know, we're probably not going to
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be able to really pick apart well, is the idea that the decline rates
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for range resources are quite low.
Thus they can spend less on Capex assential.
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The way I understand that. Listeners
feel free to tell us how I'm
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wrong in this case, but I
understand that as their wells, their gas
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wells, last longer than the average
well, the declinerate is only twenty percent
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rather than sixty to seventy percent,
and they thus don't have to spend as
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much money replenishing their source of wells. They don't have to keep digging more
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and more, drilling more and more
wells. Thus they can live within their
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means, and so that in theory, you can see how that's in an
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industry where it's tough to have competitive
advantage because gas is ultimately gasins really just
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a matter of how much you're producing. The fact that they can do that
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at a low cost way that that's
sort of so that's the argument, I
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think, and which is, you
know, just another way of saying what
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you said there. So there are
there are a few outstanding questions. Of
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course. I don't know if there's
somewhere you want to go first, but
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I think there are definitely some.
There's a reason the market is not buying
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this yet. I think, yeah, let's start with the kind of balance
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sheet angle. I think is a
good way to start. So we have
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these oil and gas assets sitting on
the balance sheet. They have a high
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carrying value on the balance sheet and
I sort of think of that in two
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separate ways. One is okay.
I believe that they use a specific accounting
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choice to help them decide the carrying
value of the assets on the balance sheet.
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But if we just go with sort
of general gut feeling, the way
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that you generate these assets on the
balance sheet is you do development of these
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resources, trying to find oil and
natural gas or whatever it is you're looking
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for. You incur expenses trying to
generate a productive thing out of a hole
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in the ground or a piece of
land or whatever it is, and then
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you book those expenses on your balance
sheet to the extent that they're successful.
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So if you dig a hole in
the ground there's no oil there, then
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you don't get to book an asset
on your balance sheet. But if you
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do find something that has, you
know, some present value, then you
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book the expenses that you incurred to
generate that act on your balance sheet.
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Right, just so they use successful
efforts method versus full costs method, which
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is more conservative. I think.
I think we both did the same,
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the same. I do googled.
I was like what is that? Yeah,
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so I'm on accounting tools, thatcom
and yeah, so it's yeah,
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I mean I was just for listeners
listening along. It's successful efforts. It's
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supposed to be more conservative. There
are still a lot of assumptions built in
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and I also, if I understood
correctly, those are not discounted, which
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is relevant because ultimately I don't think
you can produce all that gas in one
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year for a number of reasons.
And so there's you know, that's just
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something else to kind of keep in
mind. When they talked about book value
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as a Bogie for right, well, that's where I'm going with this.
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So the carrying value of the assets
on the balance sheet are related to the
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historical cost you've incurred in generating the
asset. Right, so they're there.
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You book expenses like exploration expense or
I don't know what you would actually call
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it, but like you're digging a
hole. Say you're digging a hole.
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I don't know if this company does
that, but let's just try and simplify.
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You Dig the hole and you incur
expenses. You you know, you
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pay your workers some hourly wage,
you runt equipment, you do all this
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stuff to create this asset and then
there's oil. there. Then the carrying
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value of the asset, I think, will be the expenses that you incurred
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to dig the whole net of whatever
overruns you you had that resulted in unproductive
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assets. So it's a historical cost
base way of looking at the asset.
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The problem with that is that if
you're going to value the company according to
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book value, then you have to
make an assumption that the historical cost of
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generating the asset is accurately reflective of
the present value of the future benefits you're
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going to get from creating the asset. And you can generate those future benefits
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one of two ways. You can
sell your hole in the ground to someone
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else and for cash and then they
can do whatever they want with it,
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or you can operate your hole in
the ground and and pull oil and natural
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gas and natural gas liquids out of
it and then sell those out of profit.
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And either way the present value of
those activities have to match the carrying
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value if you're going to value the
company at one time's book value. I
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think a steep discount to book value
reflects market skepticism about the historical cost of
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the assets versus the future value.
Do you think I'm out of whack here,
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Daniel, or do you think that
that's a fair way of looking at
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this? Yeah, I think that's
fair. I think when you get down
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to it, I mean it's even
we were saying. It's simple to view.
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This is sort of a leverage play
on natural gas and I think that
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discounting is a reflection of are you
actually going to yeah, I think that's
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right and I think that's one thing
worth doing when you will get this sort
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of accounting, is looking at what
their assumptions are. That go into the
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numbers. I looked at their last
K and they had a price of oil
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that was about seven dollars a barrel
higher. The price of natural gas was
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almost fifty cents of BTU million thermal
units higher. So that which is the
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more elephant number. Those are big
changes, and so that's that's I think
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sort of when we when we say
what gives the market, I think it's
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relatively we don't need to abstract too
much. The price of natural gas has
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stayed well, has gone lower,
and so there's some doubt that the company
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will be able to get this out
of the ground and sell it for the
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price assumed, a book value which
which maybe they don't need to achieve full
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book value. But then when you
throw in the cost that they have to
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pay to actually extract this, to
operate, to continue to maintain and also
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look at the I lost my train
of thought. Is what else you would
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have to look at, but I
think it's just it puts them in a
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position where they also have big debt
load and so having to navigate all that
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like there's some reason. There's something
behind this. I think you said before
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the call the market isn't usually so
far off, and that's I think what
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the market is fearing is that natural
gas production continues to be high. It's
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an important fuel. You know,
potentially there's some political uncertainty, but I
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doubt that that's really in the price
at this point. So you're looking at
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a lot of supply without any clear
sign that that's going to come down,
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and so then you really need to
hope that demand will sort of rescue you
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or that these companies will really close
down. And I don't I'm not steeped
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in the field, but neither those
seem like obvious plays right. So let's
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take so let's quickly take the other
side of that and just sort of explore
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quickly, because Casey I research has
some or comments on this. First of
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all, the strategic orientation of the
company. We already talked about that.
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How growing assets is no longer a
part of the plan. Instead, sort
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of efficiency in monetizing the current asset
base is part of the plan. The
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other thing he mentions is that the
asset base is concentrated in Appalachia, which
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case I research says is a richer
and more valuable asset base, and he
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makes an analogy to tech resources,
which is a company that experience a kind
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of bounce back that he expects here
for range resources. I don't really have
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a way of assessing one way or
another the quality of the asset base,
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but I would buy some kind of
argument that's related to concentrating and focusing on
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a specific geography, developing expertise and
exploiting the kind of natural advantages that come
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with owning a particular asset that's unique
in some way or another. So and
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I could buy that the market is
failing to appreciate that, given management's past
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track record and given the sort of
way that it's very hard to segment out
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and understand, I think, the
value of individual assets, especially for a
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lot of generalist investors, relative to
the overall energy market. So I'll buy
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that, I think. But I
think it is contingent to some degree on
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a more favorable natural gas market overall. I think that. Yeah, we
268
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you mentioned before leveraged play on commodity
prices, and I think that there is
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an aspect of optionality to this where, if natural gas prices reach a certain
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threshold, This company will simply have
to be re rated on a number of
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dimensions by the market. Because but
that sort of assumes that the market has
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an inaccurate forecast on what natural gas
prices will do and this company's ability to
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capitalize on that. Well, and
he pegs to a recent transaction as a
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good example of that. There is
some interest out there and I think it's
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a I think there are a couple
interests and things to look at. First
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off, even before this, they
do deserve credit. Even in the first
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six months of the year they reduced
their debt load. There is some progress
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being made towards cutting down on debt, which I always could obsessed about that.
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I like to see that. So
good job range resources. But why
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is that? Why do you like
that? I just think it gives you
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more options. At the end of
the day, eat you'll leaves you less
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beholden to the price of natural gas. I mean, look, you're ultimately
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going to have to make money.
But and their ballot sheet, I should
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say I did a little bit of
looking. Their ballad sheet is, especially
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once they complete this deal, isn't
awful. And the sense that they have,
286
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I can't remember the exact number,
but all of their debt basically comes
287
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due between two thousand and twenty one
and two thousand and twenty three, which
288
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is a relatively near term window,
and so they you need to start worrying
289
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about that. But they do have
the interest rates are around five percent,
290
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I think on average. They have
bank debt that they pay a lower interest
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rate on and then they have a
bunch of senior notes that pay between five
292
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and six percent, which again is
partially when people talk about the Silicon Valley
293
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bubble or whatever, or when they
talk about shale oil. The low interest
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rates is sort of fueling that,
and so that's, you know, seems
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to be playing out year and again. There could be the second level of
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other companies were able to stand the
game too, but I just think the
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especially in we talked about Kender Morgan, right, and kinder Morgan's case.
298
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The argument is that it's a steadier
business, and we can agree or disagree,
299
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but we went over that quite a
bit. But if it is indeed
300
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a steadier business, there's an argument
where leverage can get you more out of
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that steady business than just x.
You can get too extra three x,
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and then I think they've recalibrated that
over time. Right. And then with
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range resources, they I don't think
anybody would call natural gas is steady business.
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Even just looking at there again,
they're ten q operating cash flow is
305
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down about a hundred million dollars,
almost exactly a hundred million dollars over the
306
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past year, which you know could
be stuff above the line, working capital
307
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whatever else, but that to me, you know, with natural gas prices
308
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going down, that would be a
concern to me, and so the less
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I have to be behold into somebody
else, the more I can wait until
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other natural gas producers are shutting down, until supply sows down or until themand
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picks you just keeps you at the
table. So I like that. And
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then they made this deal where they
sold, they essentially sold a overriding royalty
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interest and the range of Fiftyzero net
service acors in southwest Appalachia up for six
314
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hundred million dollars, equivalent to about
twenty times free cash floil for two thousand
315
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and nineteen. And then they made
a smaller deal alongside that. They're going
316
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to put all of that towards reducing
debt, reducing their revolving credit, which
317
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is the lower interest rate. But
still it's a revolver. You want to
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keep that dry powder for when you
need it. And so you know they're
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they're almost getting this for free.
is their argument. Essentially. There's they're
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losing out forty eight million dollars in
cash flow, but then they're saving thirty
321
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million dollars in interest expense. So
you're almost you're getting like it ends up
322
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being a creative deal. And so
there is what that points to is there
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is to some degree, even if, I guess the royalty might cap their
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upside if natural gas bounces back,
it does show that there's interest in some
325
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of these assets and that if they
can get creative about how they monetize them
326
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while waiting for natural gas prices to
go higher, to continue to stay at
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00:29:00.099 --> 00:29:04.900
the table, to be able to
produce free cashual like that's that's where this
328
00:29:04.980 --> 00:29:08.779
story and that's where the tech resources, which was a huge winner in two
329
00:29:08.819 --> 00:29:12.849
thousand and sixteen, I think.
I think that's where that parallel plays out.
330
00:29:14.329 --> 00:29:18.250
So yeah, I I don't think
that's a UN a reasonable argument.
331
00:29:18.289 --> 00:29:22.089
It's it's an argument that needs things
to go right, but there, I
332
00:29:22.250 --> 00:29:30.279
think you can see it. Okay, something I'm coming back to that I
333
00:29:30.319 --> 00:29:33.039
kind of wish was a little bit
more of a focal point in this article.
334
00:29:33.480 --> 00:29:41.430
I think we're talking about a lot
of industry level risks and I'm not
335
00:29:41.710 --> 00:29:48.710
sure how how this company's valuation,
since the discount is such a huge part
336
00:29:48.750 --> 00:29:53.859
of it. I'm not sure how
the depth discount relates to the peer group.
337
00:29:53.980 --> 00:30:00.299
So I'm looking at just some high
level stats on seeking Alpha and I'm
338
00:30:00.299 --> 00:30:06.220
seeing on a gappe basis. It's
actually top of the Peer Group, and
339
00:30:06.339 --> 00:30:14.490
the Peer Group here is defined as
southwest during energy company and Taro Resources,
340
00:30:14.690 --> 00:30:21.170
Cabot, eqt and Gulfport Energy.
So I don't know, caviat listener,
341
00:30:21.440 --> 00:30:25.079
how do you say that? I
don't know. God, listener, Locutur,
342
00:30:26.160 --> 00:30:30.200
caveat locutor, I think I would
detaiur Odtour. You're the I'm the
343
00:30:30.359 --> 00:30:36.869
lower. Well, I should also
be fauseous. But forward gap pe rich
344
00:30:37.029 --> 00:30:40.589
relative to the group, maybe in
the middle of the group. On non
345
00:30:40.670 --> 00:30:45.910
gap, trailing PE, on sales, middle of the pack, and on
346
00:30:48.150 --> 00:30:55.259
Ebitda and other metrics, seemingly part
of the pure group. So I guess
347
00:30:55.339 --> 00:30:59.339
that cuts really neither here nor there, because I think the argument here is
348
00:30:59.380 --> 00:31:03.849
that this company has been punished on
duly. I just think it's funny that
349
00:31:07.289 --> 00:31:11.089
I didn't get a great sense of
relative valuation from this. Did you?
350
00:31:11.329 --> 00:31:14.809
Did you pick up anything from the
article in terms of how we should think
351
00:31:14.809 --> 00:31:21.559
about this relative to the sector,
because we're talking a lot about industry exposure.
352
00:31:21.799 --> 00:31:25.119
You're going to take a huge natural
gas price risk if you invest in
353
00:31:25.200 --> 00:31:29.839
this company. So how do we
know that we're being unduly compensated for that
354
00:31:30.039 --> 00:31:34.029
when we invest in this company in
particular versus other ones. Yeah, I
355
00:31:34.150 --> 00:31:38.470
didn't get I didn't get a great
sense that the outor mentions something like southwestern,
356
00:31:38.549 --> 00:31:44.150
which is also long or I think
yet at least bullish about, which
357
00:31:44.190 --> 00:31:49.339
is also a company that similar market
cap and similar shart. CABOT oil and
358
00:31:49.460 --> 00:31:55.220
gas is viewed as sort of sounds
to me, the way the author refers
359
00:31:55.259 --> 00:31:57.779
to it, as if it's a
better run company. And indeed, there
360
00:31:59.140 --> 00:32:02.849
again, just using for stock price, they've been steadier over the last five
361
00:32:02.970 --> 00:32:07.569
years. Still Down, but it's
not been all in one direction. And
362
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what I think is, I guess
I meant to mention this at the top
363
00:32:12.049 --> 00:32:15.000
and I don't think we did,
but the way we sort of found this
364
00:32:15.119 --> 00:32:17.839
article, we were playing around.
We have new screen or tools on seeking
365
00:32:17.839 --> 00:32:22.880
alpha where you can rate, you
can search for articles based on the collective
366
00:32:23.000 --> 00:32:30.269
author sentiment or the collective quant scores. We have internal quat ratings or the
367
00:32:31.069 --> 00:32:36.589
collective cell side rating, and so
this is something you know. It's part
368
00:32:36.589 --> 00:32:39.190
of seeking alphes central also part of
proplus. While we mention it, but
369
00:32:39.990 --> 00:32:43.869
it is. So we would just
I kind of thought would be fun to
370
00:32:43.950 --> 00:32:47.980
look at. What are stocks that
authors really like but that the other two
371
00:32:49.779 --> 00:32:52.779
metrics don't like. And when you
look at range resources it was one of
372
00:32:52.819 --> 00:32:57.660
the ones at the top of authors
are bullish, but the quant reading is
373
00:32:57.779 --> 00:33:01.529
very barish and the cell side rating
is a hold, which, frankly,
374
00:33:01.690 --> 00:33:07.329
is very barish. That's verish for
the cell sidea yeah and so and yeah,
375
00:33:07.369 --> 00:33:12.130
and when you will just look at
it against peers. Our authors our
376
00:33:12.289 --> 00:33:15.839
the peers we provide in our site
are southwestern and Tarot resources, Cabot,
377
00:33:16.160 --> 00:33:22.839
equt and Gulf port. Our authors
are bullish on all of them. No,
378
00:33:24.039 --> 00:33:30.150
no comment. The cell side is
only bullish on and Tarot, CABOT
379
00:33:30.309 --> 00:33:34.589
and equt. The quant rating is
neutral on most of them, but bearish
380
00:33:34.670 --> 00:33:38.349
on equt and very verish on range
resources. So take that for what it's
381
00:33:38.390 --> 00:33:44.460
worth. I just think it's interesting. Yeah, I think here's a want
382
00:33:44.500 --> 00:33:50.059
to throw a quick theory out there. Go for dynamic. It's possible that
383
00:33:50.539 --> 00:33:58.569
see seeking out. The authors in
particular represent a more risk tolerant or even
384
00:33:58.609 --> 00:34:07.530
risk seeking group than the market as
a whole, which I think the market
385
00:34:07.570 --> 00:34:12.960
as a whole you could interpret as
kind of the quant rating aspect of things.
386
00:34:13.119 --> 00:34:20.679
The market sort of assigns a certain
value metric and the share price momentum
387
00:34:20.800 --> 00:34:25.510
is probably reflective of some aspect of
the markets perception, and then the cell
388
00:34:25.630 --> 00:34:30.590
side has a different sort of set
of preferences. So I just wonder whether
389
00:34:31.869 --> 00:34:39.420
you could make an argument that this
is actually ultimately someone has to be right,
390
00:34:40.179 --> 00:34:47.500
but maybe there's more risk aversion in
the other two analyzes versus the seeking
391
00:34:47.539 --> 00:34:54.610
out the authors who are probably targeting
out performance and maybe more tolerant of the
392
00:34:54.730 --> 00:35:00.690
idea that this thing could bite the
dust. But on the other hand,
393
00:35:00.730 --> 00:35:02.849
the upside is so huge. I
think that's the argument being made here and
394
00:35:02.889 --> 00:35:07.880
I kind of we keep coming back
to the idea of a levered play on
395
00:35:07.960 --> 00:35:14.679
natural gas and such a steep discount
that results in a potential rebound that's enormous.
396
00:35:15.639 --> 00:35:21.710
Maybe they're just further out on the
risk curve than the other two metrics
397
00:35:21.750 --> 00:35:27.949
we have here. We're back to
risk parody. Yeah, I bring up
398
00:35:28.469 --> 00:35:30.949
I think that's yeah, I think
that's reasonable. I think you know,
399
00:35:30.030 --> 00:35:36.699
there are lots of authors are prone
to write about things that they're already holding
400
00:35:36.739 --> 00:35:40.420
in their portfolio longer. Short,
I would without knowing I would expect the
401
00:35:40.539 --> 00:35:45.219
bell curve, especially once you get
out of the most hundred, a hundred
402
00:35:45.300 --> 00:35:51.369
most popular tickers. I would expect
the Bell Curve for author scores to be
403
00:35:51.769 --> 00:35:58.769
much more to two topped. I
would assume the bullish side is a bigger
404
00:35:58.809 --> 00:36:01.210
top. But then I would assume
there's more of a quest around bearish than
405
00:36:01.289 --> 00:36:07.079
neutral. Yeah, where it's Sular
eyes, whereas I would assume, I
406
00:36:07.119 --> 00:36:10.480
would take the cell side to just
have a more normalized distribution centered on bullish
407
00:36:10.800 --> 00:36:15.760
as hire to. Yeah, it's
just how the business is and so and
408
00:36:15.840 --> 00:36:17.909
then I don't know what the quant
ratings I have was to judge on.
409
00:36:19.829 --> 00:36:22.630
But yeah, I think that's reasonable
and I think it's I guess what that
410
00:36:22.750 --> 00:36:27.110
from the investing standpoint, because I've
and I'll give an example from something I'm
411
00:36:27.110 --> 00:36:31.349
doing in my own research at some
point. I I'm not making excuses here,
412
00:36:31.429 --> 00:36:36.860
but you have because I think with
the commodity plays it always becomes more
413
00:36:36.900 --> 00:36:39.579
obvious of all right, well,
what makes one oil producer different than another?
414
00:36:40.139 --> 00:36:44.099
Why should I differentiate? Why should
I pick one or the other?
415
00:36:44.699 --> 00:36:46.730
And you kind of have to study
them all to really, I think,
416
00:36:46.809 --> 00:36:50.889
to make reasonable choice. But at
the same time, you can just say
417
00:36:50.929 --> 00:36:52.409
I like this set up and go
for it. I don't know. That's
418
00:36:52.409 --> 00:36:57.210
sort of the balance you're making.
I'm just I'm looking at an industrial company
419
00:36:57.329 --> 00:37:00.050
that is cyclical, that is,
you know, on a downturn turn and
420
00:37:00.250 --> 00:37:05.920
poised, I would think, to
have a few more bad quarters and I'm
421
00:37:05.920 --> 00:37:08.239
just trying to so I've got this. I've started the spreadsheet and I like
422
00:37:08.400 --> 00:37:13.360
to do things more or less manually, where I'm looking at the metrics across
423
00:37:13.400 --> 00:37:15.909
twenty different companies and you got anything
else. That takes a lot of time
424
00:37:16.110 --> 00:37:20.070
and I, you know, I'm
dumb and do it very manually. But,
425
00:37:20.230 --> 00:37:25.789
like you know, equals average,
equals average. Know what I'm it'll
426
00:37:25.869 --> 00:37:30.739
take the average for you. I
what I'm doing is I'm taking I go
427
00:37:30.900 --> 00:37:36.179
to their ten ques and their ten
case and I like manually pull the trailing
428
00:37:36.260 --> 00:37:40.780
twelve nine month number. It's like
go to ten que, figure out the
429
00:37:40.820 --> 00:37:44.769
difference between this year and last year, then add that into the K.
430
00:37:45.130 --> 00:37:52.409
it's there's there are smarter ways out
there, but I'm very stubborn, is
431
00:37:52.530 --> 00:37:57.650
one word, and I'd like to
like to have my own cooking. I
432
00:37:57.730 --> 00:38:02.920
don't like to trust anybody else's fancy
data process. So, but anyway,
433
00:38:04.559 --> 00:38:07.719
that's where, yeah, that's where
the opportunity lies. Sounds like a great
434
00:38:07.719 --> 00:38:15.590
use of your time, but I
admire your commitment to integrity of your vy
435
00:38:15.869 --> 00:38:22.070
and such as it is. So
so where does that leave us for range
436
00:38:22.110 --> 00:38:25.150
resources? What's at your where do
you take where do you end up here?
437
00:38:28.539 --> 00:38:37.260
I I don't hate the idea.
I don't think I'm persuaded that there's
438
00:38:37.300 --> 00:38:45.889
an outsized opportunity relative to the pricing. I think for me too, I
439
00:38:46.010 --> 00:38:49.849
think the next steps for me would
be, okay, let's look at the
440
00:38:49.929 --> 00:38:54.530
debt maturities and let's look at the
interest expense and find out sort of what
441
00:38:54.960 --> 00:39:01.199
stress test test the opportunity to the
downside and sort of figuring figure out what
442
00:39:01.360 --> 00:39:08.800
could happen here if the markets more
or less right about the direction of natural
443
00:39:08.800 --> 00:39:15.469
gas prices and range resources ability to
realize value, and then having that downside
444
00:39:15.510 --> 00:39:19.550
in place, I think then we
could start to make an assessment of okay,
445
00:39:19.630 --> 00:39:24.780
what would a normalized valuation look like? and to me that if,
446
00:39:24.980 --> 00:39:30.780
if you can be zeroed out in
a bankruptcy, which is we've seen happen.
447
00:39:31.179 --> 00:39:35.260
I joked about bankruptcies and energy space, but it happens a lot,
448
00:39:35.340 --> 00:39:43.210
especially when you lever up. It's
it's a highly risky situation to have an
449
00:39:43.329 --> 00:39:49.449
expected dream of cash flows that are
definite versus revenues and earnings that are dependent
450
00:39:49.489 --> 00:39:58.920
on cyclical pricing. So I sort
of buy that there is a large upside
451
00:39:59.079 --> 00:40:07.989
case here. I don't know how
the disc distribution is made up and it
452
00:40:07.190 --> 00:40:12.789
may not be all that heavily weighted
to the upside versus the downside. That's
453
00:40:12.789 --> 00:40:20.110
certainly the market is not massively assigning
and upside probability here. We wouldn't have
454
00:40:20.349 --> 00:40:29.739
this strange valuation thing. I'm caught
up also in this concept of monetizing the
455
00:40:29.820 --> 00:40:37.929
asset base and now being able to
generate additional value for shareholders through reduced cap
456
00:40:38.010 --> 00:40:44.929
BACs expenditures and therefore sort of generating
greater free cash flow. I understand the
457
00:40:45.130 --> 00:40:54.880
idea there, but I'm hesitant to
buy it. I just don't quite buy
458
00:40:55.079 --> 00:41:00.519
that you can sort of toggle this
switch at will. I'd be a little
459
00:41:00.519 --> 00:41:07.230
more concerned that some of these assets
don't have necessarily the value that's reflected on
460
00:41:07.349 --> 00:41:13.510
the balance sheet and then maybe once
you discount them, then the the valuations
461
00:41:13.630 --> 00:41:22.059
starts to look a lot more fair
and I am not positive that management's new
462
00:41:22.139 --> 00:41:27.500
direction is necessarily going to move the
needle one way or another one probably the
463
00:41:27.579 --> 00:41:31.619
overriding factor is out of their control, which is gas prices. So I
464
00:41:31.780 --> 00:41:35.889
like it in the sense that it
is contrarian and I like it in the
465
00:41:36.010 --> 00:41:44.889
sense that there is a reasonable,
substantial upside case to the story. I'm
466
00:41:44.929 --> 00:41:52.599
not overwhelmingly convinced that the overall distribution
of outcomes is all that attractive, but
467
00:41:52.679 --> 00:41:55.760
I like but I think it would
be worth looking at in more detail.
468
00:41:57.679 --> 00:42:02.909
What about you? Yeah, I
think high level roughly agree with the conclusion.
469
00:42:04.030 --> 00:42:12.829
I think that three things I would
want to interrogate further are how it
470
00:42:12.949 --> 00:42:15.710
fits in with the rest of the
industry and what's going on with the industry.
471
00:42:15.820 --> 00:42:21.019
Like why range resources were as anything
else. If I'm if I'm if
472
00:42:21.219 --> 00:42:23.579
this is just a basket of plays, fine, but if it's if I'm
473
00:42:23.739 --> 00:42:28.780
coming, if I want exposure natural
gas, why should I consider range resources
474
00:42:28.860 --> 00:42:34.090
primarily? I think that was something
that wasn't discussed here. I think the
475
00:42:34.329 --> 00:42:38.809
cat acts. I'm always interested.
Is this feasible that they'll continue to maintain
476
00:42:38.969 --> 00:42:45.639
that lower APP x rate that would
be. That would be something you know,
477
00:42:45.719 --> 00:42:50.159
that's an important piece of this story, and so I think that's something
478
00:42:50.480 --> 00:42:54.679
we can't really neither of us are
capable of really stress testing, but I
479
00:42:54.800 --> 00:43:00.590
think that's interesting. And then I
would say the last thing that I would
480
00:43:00.590 --> 00:43:05.989
just be interested in is I think
with a relative you should be able to
481
00:43:06.030 --> 00:43:10.110
do some sensitivity tables here and just
kind of see what like even more than
482
00:43:10.190 --> 00:43:15.019
the spread of normalized distributions as far
as returns, just in terms of what
483
00:43:15.300 --> 00:43:20.420
the company would be making under different, yeah, gas prices. That to
484
00:43:20.500 --> 00:43:23.500
me doesn't seem like could be a
ton of that seems important and doesn't seem
485
00:43:23.500 --> 00:43:30.329
like would be two out of manual
ttm type of spreadsheet. I think we
486
00:43:30.409 --> 00:43:34.530
can agree. And makes for a
boring Sunday. It makes for a boring
487
00:43:34.690 --> 00:43:38.929
study, but sometimes that's the sacrifice
you have to make to find Outa Mike.
488
00:43:40.289 --> 00:43:46.760
Indeed, not that it's worked for
me, but so I had one
489
00:43:46.880 --> 00:43:51.519
thought, a glimmer of a slot
here, and I just want to I'll
490
00:43:51.599 --> 00:43:58.190
just put it out there and you
react how how you see fit. It's
491
00:43:59.550 --> 00:44:07.510
natural gas time shares. You take
the property and then whoever wants they can.
492
00:44:07.590 --> 00:44:10.739
You can have a couple weeks trying
to extract the gas and then when
493
00:44:10.780 --> 00:44:15.780
your time is up, then you
have to move out and you just sort
494
00:44:15.780 --> 00:44:20.019
of slice it up that way and
then you know different time slots that have
495
00:44:20.179 --> 00:44:23.329
different values and we cut this up
to make for a more just, efficient
496
00:44:23.409 --> 00:44:30.530
market in general, and if somebody's
unhappy with their time share, they can
497
00:44:30.610 --> 00:44:35.010
just say they had a bad case
of gas and move on. Oh No,
498
00:44:37.369 --> 00:44:44.000
Oh no, Oh, Daniel,
oh no, we've been dancing around
499
00:44:44.000 --> 00:44:46.840
it the whole time. We the
gut the story natural gas. Well,
500
00:44:46.920 --> 00:44:52.440
I guess we finally reached a well, the point. If you're allowed to
501
00:44:52.480 --> 00:44:54.230
go back to time shares, I've
allowed to go back to dead okay,
502
00:44:54.429 --> 00:44:58.190
Y, think. I think that's
that was the premise. I I was
503
00:44:58.309 --> 00:45:00.269
going with their. Well, I
was trying to think, you know,
504
00:45:00.349 --> 00:45:02.269
if we're bullish natural gas, Daniel, which I think you know, you
505
00:45:02.469 --> 00:45:07.980
and I are, got eventually come
around on that, we could just start
506
00:45:07.980 --> 00:45:13.500
our own little exploration company, get
out there and apple latch, open had
507
00:45:13.619 --> 00:45:19.219
some hard hats and start booking some
historical costs. I like, apart carrying
508
00:45:19.300 --> 00:45:24.010
value on the balance sheet, just
feel like so enormous H R dug another
509
00:45:24.130 --> 00:45:32.610
bad hole. Shoot. I guess
you prefer of all costs, as you're
510
00:45:32.650 --> 00:45:36.679
a Kount of meat. We're dude. We will not be able to use
511
00:45:36.719 --> 00:45:42.159
any other it be full carry.
Otherwise, I balance you will be the
512
00:45:42.400 --> 00:45:47.920
disaster. You know, we've come
up with a lot of business ideas.
513
00:45:47.960 --> 00:45:52.750
I'm behind the idea. I don't
think that that one. I think that
514
00:45:52.869 --> 00:45:58.750
one's probably towards the bottom of the
list. I gotta say I like Appalachia.
515
00:45:59.630 --> 00:46:07.659
I be happy to go visit.
I don't know that drilling holes there
516
00:46:07.739 --> 00:46:14.059
would help anybody. Yeah, well, all right. The search continues for
517
00:46:14.179 --> 00:46:21.409
our great next great investment opportunity with
our own time and effort, but we
518
00:46:21.449 --> 00:46:24.449
haven't found it here on this podcast. Listeners were open to suggestions, but
519
00:46:24.570 --> 00:46:29.289
I think we should leave it.
They're all right, all right, thanks,
520
00:46:29.369 --> 00:46:34.119
Mike. All right, Daniel,
take care bike. Thanks for listening.
521
00:46:34.119 --> 00:46:37.000
To be on the idea. I
hope you enjoyed it. We're pulling
522
00:46:37.079 --> 00:46:39.199
into the end of the year stretch
and want to remind you to watch out
523
00:46:39.199 --> 00:46:45.480
for bonus episodes some of our top
authors. On Friday featured Tim tightment of
524
00:46:45.519 --> 00:46:51.309
investing fiber one robust she's so far. Get them on this same channel,
525
00:46:51.469 --> 00:46:59.710
because always have a chance to raise
US early, because you production thank you
526
00:46:59.750 --> 00:46:59.989
for this
1
00:00:00.400 --> 00:00:03.600
This week I'm the young idea.
We look at a contrarian idea on range
2
00:00:03.680 --> 00:00:07.669
resources and natural gas producer that has
had a tough go of it for the
3
00:00:07.710 --> 00:00:12.750
last five years. CACI Research Limited, argues that the company has corrected its
4
00:00:12.830 --> 00:00:16.670
mistakes and that the market will be
forced to recognize its value soon enough.
5
00:00:16.710 --> 00:00:20.589
Natural gas is a commodity, of
course, and that leads to me wondering
6
00:00:20.589 --> 00:00:24.539
about how to succeed in the industry
as a whole. They I don't think
7
00:00:24.579 --> 00:00:28.019
anybody would call natural gas is steady
business. You know, with natural gas
8
00:00:28.140 --> 00:00:32.299
prices going down. That would be
a concern to me, and so the
9
00:00:32.619 --> 00:00:35.890
less I have to be behold into
somebody else, the more I can wait.
10
00:00:36.450 --> 00:00:42.049
Until other natural gas producers are shutting
down, until supply saws down or
11
00:00:42.049 --> 00:00:45.450
until demand picks you just keeps you
at the table, so I like that.
12
00:00:46.530 --> 00:00:50.880
Meanwhile, this discussion leads Mike to
Wonder about seeking Alpha's author's risk tolerance
13
00:00:50.960 --> 00:00:58.240
rit large. It's possible that seeking
out, the authors in particular, represent
14
00:00:58.960 --> 00:01:07.390
a more risk tolerant, or even
risk seeking group than the market as a
15
00:01:07.469 --> 00:01:14.069
whole. There's no doubt that range
rejoice. There's no doubt that range resources
16
00:01:14.109 --> 00:01:17.829
is a contrarian pick compared to the
market trend, but it's also a quite
17
00:01:17.829 --> 00:01:22.260
popular one among authors on Seeking Alpha. What to make of that quandary and
18
00:01:22.379 --> 00:01:26.379
how does it given commodity pick stand
out? We discuss on this week's behind
19
00:01:26.420 --> 00:01:37.329
the idea. Welcome to behind the
idea. I'm down, Frans, and
20
00:01:37.450 --> 00:01:42.650
I'm like Taylor's. This week we're
looking at an idea ACI research limited posted
21
00:01:42.730 --> 00:01:49.079
in July on range resources. Take
her symbol. Our RC range resources and
22
00:01:49.239 --> 00:01:55.239
independent natural gas, natural gas,
liquids and Oil Company primarily focus in the
23
00:01:55.280 --> 00:02:00.640
Appalachian and North Louis and of resugents. The company has been a favorite of
24
00:02:00.719 --> 00:02:04.989
seeking Alpha authors for a long time, but the market is felt otherwise for
25
00:02:05.150 --> 00:02:07.469
just as long as anybody who has
looked at a five year chart could say.
26
00:02:07.509 --> 00:02:14.509
K Ci Research Limited takes a contrarian
view, arguing that the company is
27
00:02:14.750 --> 00:02:20.900
just too cheap to ignore, trading
at a fraction of tangible book value while
28
00:02:20.979 --> 00:02:24.099
producing free cash will over the last
twelve months as well as positive net income.
29
00:02:24.500 --> 00:02:29.460
It would seem there's an argument here. So what gives with the stocks
30
00:02:29.539 --> 00:02:32.689
performance? With five years of nearly
straight down into the right trading, which
31
00:02:32.729 --> 00:02:38.770
has persists to through the last few
months. will discuss on this week's behind
32
00:02:38.770 --> 00:02:42.810
the idea before we begin. Yin
The idea is the podcast that looks at
33
00:02:42.810 --> 00:02:46.080
what makes great investment analysis work,
based on ideas from the seeking Alpha ecosystem
34
00:02:46.120 --> 00:02:52.240
and books by Joel Greenblatt. Neither
Mike nor I have any positions and any
35
00:02:52.319 --> 00:02:57.000
stocks we expect to discuss, because
we don't really invest in energy. Nothing
36
00:02:57.120 --> 00:03:05.270
on this podcast should be taken as
investment advice of any sort. And everyone,
37
00:03:06.389 --> 00:03:12.939
I'm here to remind you that behind
the idea is brought to you by
38
00:03:13.060 --> 00:03:23.740
seeking Alpha proplus. PROPLUS is seeking
Alpha's premier subscription offering, which provides subscribers
39
00:03:24.219 --> 00:03:36.050
with exclusive access to seeking Alpha's best
research and real time alerts to talk quality
40
00:03:36.129 --> 00:03:40.639
analysis, as well as software tools
like our idea filter and screening tools to
41
00:03:40.840 --> 00:03:49.080
help you find the best research our
platform has to offer. To check out
42
00:03:49.199 --> 00:03:54.199
pro plus, with a thirty day
money back guarantee, go to seeking Alphacom
43
00:03:55.069 --> 00:04:03.750
proplus. That seeking alphacom pro O
plus. Daniel. Do we have anything
44
00:04:03.789 --> 00:04:08.069
else to discuss before we dive in? Well, I we can say that
45
00:04:08.270 --> 00:04:13.659
proplus does cover energy. So anybody? I'm just looking at my proplus feed
46
00:04:13.740 --> 00:04:16.980
and there was an oh yeah sent
out on energy yesterday. Yeah, with
47
00:04:17.100 --> 00:04:25.170
all the with all the bankruptcies and
challenges that many energy companies face, there's
48
00:04:25.170 --> 00:04:31.089
actually a special proplus vertical devoted to
small and micro cap situations. Many energy
49
00:04:31.170 --> 00:04:39.439
companies become small and micro caps on
their way to extinction, and for that
50
00:04:39.720 --> 00:04:46.439
proflus has you covered, proplus.
But seriously, proplus has a special vertical
51
00:04:46.839 --> 00:04:56.310
devoted to oddball stock special situations and
microcaps, including bankroptcis and bankroptcy securities and
52
00:04:56.750 --> 00:05:00.750
the opportunities available there. So it
is a good tool for checking out some
53
00:05:00.910 --> 00:05:06.699
of the more distressed aspects of energy
investing. So maybe a fitting. The
54
00:05:06.740 --> 00:05:11.259
last thing before we get started.
We got a new review that I wanted
55
00:05:11.259 --> 00:05:16.339
to share. It happened during our
green bladder. POLOOSA got a review from
56
00:05:16.500 --> 00:05:26.610
gk underscore minute d titled Interesting and
Fun for Stars Out of Fun Right Right
57
00:05:26.689 --> 00:05:30.930
now. A four out of Florence. Actually, the review reads. Longtime
58
00:05:30.050 --> 00:05:33.089
Listener, I quite enjoy the banter
and the attempts to get to the bottom
59
00:05:33.089 --> 00:05:38.879
of an investment thesis from different perspectives. I appreciate that they call bs on
60
00:05:38.959 --> 00:05:43.319
the growth at all costs narrative.
Only criticism would be that they come across
61
00:05:43.319 --> 00:05:48.639
as Perma bears, which, admittedly, they do acknowledge. Well, gk
62
00:05:48.800 --> 00:05:53.470
Manu D, thank you. That's
yeah, that's kind generous. I would
63
00:05:54.350 --> 00:05:57.910
go so far as to say that
that feels like a generous review, especially
64
00:05:57.949 --> 00:06:02.189
in light of my comments about bankruptcy. Fair enough, I wouldn't say that
65
00:06:02.350 --> 00:06:09.860
we're permote. There's like the sky
is always falling where we are trying to
66
00:06:09.980 --> 00:06:14.779
be skeptical and trying to probe and
stress test, but I mean, I
67
00:06:14.899 --> 00:06:19.730
know I've ended up investing in ideas
that we've covered on this podcast at some
68
00:06:19.850 --> 00:06:26.930
point or another and I was delish. Yeah, yeah, but I think
69
00:06:26.970 --> 00:06:31.689
we're going to sound pretty Barish today. Yeah, unfortunately for GK MINUDI and
70
00:06:31.879 --> 00:06:39.240
other listeners who dislike our Barishness,
we're going to have a tough time here
71
00:06:39.319 --> 00:06:43.279
with range resources. So might maybe
we should just get into it. Yeah,
72
00:06:43.399 --> 00:06:45.720
do you want to take a first
crack at this? I know we're
73
00:06:45.800 --> 00:06:49.029
trying to talk before the show and
wrap our heads around the idea what Casey
74
00:06:49.110 --> 00:06:53.589
I research is trying to do and
what's going on. We want to take
75
00:06:53.589 --> 00:06:56.509
a first cut? Yeah, I
will take a stab at it, and
76
00:06:56.670 --> 00:07:02.139
this is shout out to all our
listeners who came with us on our kinder
77
00:07:02.220 --> 00:07:09.500
Morgan Adventure, where we assessed an
opportunity in kinder Morgan shares similar type of
78
00:07:09.620 --> 00:07:16.009
COMP company, especially with respect to
the fact that range resources has substantial natural
79
00:07:16.089 --> 00:07:23.250
gas and natural gas liquids operations,
and also similar in the fact that Daniel
80
00:07:23.329 --> 00:07:26.850
and I seem to get in a
bit over our heads when we try to
81
00:07:26.970 --> 00:07:32.560
discuss energy companies, and our listeners
like to let us know when they feel
82
00:07:32.639 --> 00:07:39.160
that we've done that. So just
a fair warning ahead of time. As
83
00:07:39.240 --> 00:07:45.550
we go into the discussion and the
comments here. We both readily admit that
84
00:07:45.670 --> 00:07:49.470
we're not energy specialists and we're here
to have fun trying to examine an understanding
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idea. As our most recent reviewers
said, we attempt to get to the
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bottom of an investment thesis from different
perspectives. So keep that in mind.
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But nothing ventured, nothing gained,
especially in the stock market. Am I
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right? Well, that's risk parody
and all that stuff. Yeah, so
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we're going to do some huge risk
parody here. I'm levering way the heck
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up. Let's hear hard and so
okay range resources. The crux of the
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argument, I think the CACI research
is making, is that the markets really
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been punishing the stock. The headline
is too cheap to ignore and this is
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just an overdone down draft to the
downside for the share price. That's really
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the you have situations, you know, where it's a healthy company and the
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market is pricing it as though it's
healthy and you kind of look at the
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situation you say that optimism that the
market is already priced the company for is
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still too pessimistic. The company is
valued at a at an attractive, at
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a sort of rich valuation, but
I am optimistic about the health of the
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business and the profitability and all that. Well, we have here is a
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kind of inverse of that, where
the stock price is just simply so low
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that even if the company is kind
of bad or unattractive or undesirable, we
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still are forced to examine the opportunity
simply based on the valuation at the market
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is inferring about the company relatives to
its fundamental so that's the big picture umbrella
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thing. I think Casey, our
research is saying this is too cheap to
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ignore. But then there's more meat
on the bone than just that, of
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course, or we wouldn't be doing
the idea on behind the idea, and
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that's basically that. There are specific
reasons why the market has punished the company.
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One is that they made a bad
acquisition a couple years ago, two
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thousand and sixteen. That didn't work
out well for them, but they sort
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of digested that and management has now
shifted focus away from growing the operations,
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growing the asset base and becoming inquisitive
of assets and instead focusing on maintaining current
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operations and, when opportunity presents itself, monetizing its assets through sales and divestments
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and then transferring the cash that's generated
from those transactions back to shareholders. So,
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in light of that, I think, if I were to summarize,
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it's a CACI research as saying the
the market is still punishing this company as
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though it's primed to grow its asset
base and make additional acquisitions that are undesirable
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and won't create additional value for shareholders. But in reality the strategy is now
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shifted and the there will be less
emphasis on growth capacs going forward. The
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company will try to contain its maintenance
cat bacts and that shift in reduction of
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capital expenditures will generate incremental value that
can then be transferred to shareholders. How
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do you think I did, Daniel? I think that's the guts of it,
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really is. I think that they
have the guts of it. No,
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I mean, look, it's this
is not. We should mention the
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author, Casey I Research Limited.
That stands for cold this contrarian investments limited.
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The author runs a marketplace service called
the in Contrarian, which is,
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I should say, with my market
place had on, a popular one,
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but it's a it's a style that
is about picking out sort of what you
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were saying at the beginning, these
very much unloved stocks that could potentially rebound
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significantly, and so I think that's
the thesis here, is that there's a
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lot of you look at the book
value and the book value essentially comprises of
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their natural gas resources, right or
I guess that's obvious to say it's natural
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gas company primarily, but that's the
their book value is something like four billion
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dollars. They trade for one point
two market cap and if you look at
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their late is tank, you,
I think they're valuing the natural gas properties
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at something like nine point one.
Natural Gas and oil properties at nine point
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one billion after depletion in depreciation.
So the story is that they have these
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supposed assets that they can, they
need to convert into something more liquid,
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something more marketable, and if they're
able to do that at a reasonable cost,
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and right now they are, there's
some evidence this growth to maintenance.
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We will get into I think,
because that always can be fuzzy. But
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they're they're living with it within their
means. Now, if you define their
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means is operating cash flow, they
are actually keeping positive free cash flow.
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The author says they're cheap. Anyway
you look at it, and I sort
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of in my head before the cause
snarkily thinking about all there must be some
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way, because the author didn't give
us a ton of metrics, just gave
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us the tangible book value. But
it does look pretty cheap. Ev if
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it the number we report on seeking
Alpha is under for the price to free
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cash flow is about nine eight point
seven. I think my math showed those
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are you know, there are other
issues here. There's the balance sheet and
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there's the fact that we're still commodity
exposed, but that's that's intriguing. And
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then there is the argument. So
the arguments fairly straightforward. The the element
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that's a little bit more nuanced and
you know, we're probably not going to
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be able to really pick apart well, is the idea that the decline rates
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for range resources are quite low.
Thus they can spend less on Capex assential.
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The way I understand that. Listeners
feel free to tell us how I'm
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wrong in this case, but I
understand that as their wells, their gas
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wells, last longer than the average
well, the declinerate is only twenty percent
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rather than sixty to seventy percent,
and they thus don't have to spend as
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much money replenishing their source of wells. They don't have to keep digging more
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and more, drilling more and more
wells. Thus they can live within their
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means, and so that in theory, you can see how that's in an
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industry where it's tough to have competitive
advantage because gas is ultimately gasins really just
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a matter of how much you're producing. The fact that they can do that
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at a low cost way that that's
sort of so that's the argument, I
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think, and which is, you
know, just another way of saying what
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you said there. So there are
there are a few outstanding questions. Of
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course. I don't know if there's
somewhere you want to go first, but
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I think there are definitely some.
There's a reason the market is not buying
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this yet. I think, yeah, let's start with the kind of balance
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sheet angle. I think is a
good way to start. So we have
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these oil and gas assets sitting on
the balance sheet. They have a high
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carrying value on the balance sheet and
I sort of think of that in two
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separate ways. One is okay.
I believe that they use a specific accounting
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choice to help them decide the carrying
value of the assets on the balance sheet.
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But if we just go with sort
of general gut feeling, the way
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that you generate these assets on the
balance sheet is you do development of these
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resources, trying to find oil and
natural gas or whatever it is you're looking
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for. You incur expenses trying to
generate a productive thing out of a hole
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in the ground or a piece of
land or whatever it is, and then
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you book those expenses on your balance
sheet to the extent that they're successful.
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So if you dig a hole in
the ground there's no oil there, then
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you don't get to book an asset
on your balance sheet. But if you
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do find something that has, you
know, some present value, then you
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book the expenses that you incurred to
generate that act on your balance sheet.
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Right, just so they use successful
efforts method versus full costs method, which
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is more conservative. I think.
I think we both did the same,
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the same. I do googled.
I was like what is that? Yeah,
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so I'm on accounting tools, thatcom
and yeah, so it's yeah,
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I mean I was just for listeners
listening along. It's successful efforts. It's
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supposed to be more conservative. There
are still a lot of assumptions built in
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and I also, if I understood
correctly, those are not discounted, which
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is relevant because ultimately I don't think
you can produce all that gas in one
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year for a number of reasons.
And so there's you know, that's just
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something else to kind of keep in
mind. When they talked about book value
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as a Bogie for right, well, that's where I'm going with this.
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So the carrying value of the assets
on the balance sheet are related to the
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historical cost you've incurred in generating the
asset. Right, so they're there.
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You book expenses like exploration expense or
I don't know what you would actually call
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it, but like you're digging a
hole. Say you're digging a hole.
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I don't know if this company does
that, but let's just try and simplify.
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You Dig the hole and you incur
expenses. You you know, you
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pay your workers some hourly wage,
you runt equipment, you do all this
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stuff to create this asset and then
there's oil. there. Then the carrying
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value of the asset, I think, will be the expenses that you incurred
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to dig the whole net of whatever
overruns you you had that resulted in unproductive
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assets. So it's a historical cost
base way of looking at the asset.
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The problem with that is that if
you're going to value the company according to
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book value, then you have to
make an assumption that the historical cost of
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generating the asset is accurately reflective of
the present value of the future benefits you're
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going to get from creating the asset. And you can generate those future benefits
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one of two ways. You can
sell your hole in the ground to someone
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else and for cash and then they
can do whatever they want with it,
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or you can operate your hole in
the ground and and pull oil and natural
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gas and natural gas liquids out of
it and then sell those out of profit.
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And either way the present value of
those activities have to match the carrying
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value if you're going to value the
company at one time's book value. I
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think a steep discount to book value
reflects market skepticism about the historical cost of
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the assets versus the future value.
Do you think I'm out of whack here,
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Daniel, or do you think that
that's a fair way of looking at
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this? Yeah, I think that's
fair. I think when you get down
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to it, I mean it's even
we were saying. It's simple to view.
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This is sort of a leverage play
on natural gas and I think that
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discounting is a reflection of are you
actually going to yeah, I think that's
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right and I think that's one thing
worth doing when you will get this sort
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of accounting, is looking at what
their assumptions are. That go into the
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numbers. I looked at their last
K and they had a price of oil
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that was about seven dollars a barrel
higher. The price of natural gas was
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almost fifty cents of BTU million thermal
units higher. So that which is the
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more elephant number. Those are big
changes, and so that's that's I think
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sort of when we when we say
what gives the market, I think it's
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relatively we don't need to abstract too
much. The price of natural gas has
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stayed well, has gone lower,
and so there's some doubt that the company
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will be able to get this out
of the ground and sell it for the
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price assumed, a book value which
which maybe they don't need to achieve full
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book value. But then when you
throw in the cost that they have to
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pay to actually extract this, to
operate, to continue to maintain and also
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look at the I lost my train
of thought. Is what else you would
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have to look at, but I
think it's just it puts them in a
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position where they also have big debt
load and so having to navigate all that
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like there's some reason. There's something
behind this. I think you said before
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the call the market isn't usually so
far off, and that's I think what
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the market is fearing is that natural
gas production continues to be high. It's
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an important fuel. You know,
potentially there's some political uncertainty, but I
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doubt that that's really in the price
at this point. So you're looking at
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a lot of supply without any clear
sign that that's going to come down,
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and so then you really need to
hope that demand will sort of rescue you
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or that these companies will really close
down. And I don't I'm not steeped
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in the field, but neither those
seem like obvious plays right. So let's
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take so let's quickly take the other
side of that and just sort of explore
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quickly, because Casey I research has
some or comments on this. First of
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all, the strategic orientation of the
company. We already talked about that.
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How growing assets is no longer a
part of the plan. Instead, sort
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of efficiency in monetizing the current asset
base is part of the plan. The
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other thing he mentions is that the
asset base is concentrated in Appalachia, which
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case I research says is a richer
and more valuable asset base, and he
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makes an analogy to tech resources,
which is a company that experience a kind
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of bounce back that he expects here
for range resources. I don't really have
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a way of assessing one way or
another the quality of the asset base,
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but I would buy some kind of
argument that's related to concentrating and focusing on
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a specific geography, developing expertise and
exploiting the kind of natural advantages that come
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with owning a particular asset that's unique
in some way or another. So and
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I could buy that the market is
failing to appreciate that, given management's past
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track record and given the sort of
way that it's very hard to segment out
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and understand, I think, the
value of individual assets, especially for a
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lot of generalist investors, relative to
the overall energy market. So I'll buy
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that, I think. But I
think it is contingent to some degree on
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a more favorable natural gas market overall. I think that. Yeah, we
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you mentioned before leveraged play on commodity
prices, and I think that there is
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an aspect of optionality to this where, if natural gas prices reach a certain
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threshold, This company will simply have
to be re rated on a number of
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dimensions by the market. Because but
that sort of assumes that the market has
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an inaccurate forecast on what natural gas
prices will do and this company's ability to
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capitalize on that. Well, and
he pegs to a recent transaction as a
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good example of that. There is
some interest out there and I think it's
275
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a I think there are a couple
interests and things to look at. First
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off, even before this, they
do deserve credit. Even in the first
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six months of the year they reduced
their debt load. There is some progress
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being made towards cutting down on debt, which I always could obsessed about that.
279
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I like to see that. So
good job range resources. But why
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is that? Why do you like
that? I just think it gives you
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more options. At the end of
the day, eat you'll leaves you less
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beholden to the price of natural gas. I mean, look, you're ultimately
283
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going to have to make money.
But and their ballot sheet, I should
284
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say I did a little bit of
looking. Their ballad sheet is, especially
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once they complete this deal, isn't
awful. And the sense that they have,
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I can't remember the exact number,
but all of their debt basically comes
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due between two thousand and twenty one
and two thousand and twenty three, which
288
00:25:48.079 --> 00:25:52.190
is a relatively near term window,
and so they you need to start worrying
289
00:25:52.230 --> 00:25:59.710
about that. But they do have
the interest rates are around five percent,
290
00:25:59.789 --> 00:26:03.990
I think on average. They have
bank debt that they pay a lower interest
291
00:26:03.029 --> 00:26:07.019
rate on and then they have a
bunch of senior notes that pay between five
292
00:26:07.059 --> 00:26:14.059
and six percent, which again is
partially when people talk about the Silicon Valley
293
00:26:14.740 --> 00:26:18.529
bubble or whatever, or when they
talk about shale oil. The low interest
294
00:26:18.569 --> 00:26:22.049
rates is sort of fueling that,
and so that's, you know, seems
295
00:26:22.049 --> 00:26:26.450
to be playing out year and again. There could be the second level of
296
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other companies were able to stand the
game too, but I just think the
297
00:26:30.089 --> 00:26:34.960
especially in we talked about Kender Morgan, right, and kinder Morgan's case.
298
00:26:36.400 --> 00:26:40.039
The argument is that it's a steadier
business, and we can agree or disagree,
299
00:26:40.240 --> 00:26:42.160
but we went over that quite a
bit. But if it is indeed
300
00:26:42.200 --> 00:26:47.470
a steadier business, there's an argument
where leverage can get you more out of
301
00:26:47.509 --> 00:26:52.589
that steady business than just x.
You can get too extra three x,
302
00:26:52.869 --> 00:26:57.309
and then I think they've recalibrated that
over time. Right. And then with
303
00:26:57.470 --> 00:27:03.380
range resources, they I don't think
anybody would call natural gas is steady business.
304
00:27:03.460 --> 00:27:08.180
Even just looking at there again,
they're ten q operating cash flow is
305
00:27:08.380 --> 00:27:17.089
down about a hundred million dollars,
almost exactly a hundred million dollars over the
306
00:27:17.130 --> 00:27:21.609
past year, which you know could
be stuff above the line, working capital
307
00:27:21.730 --> 00:27:27.009
whatever else, but that to me, you know, with natural gas prices
308
00:27:27.210 --> 00:27:32.519
going down, that would be a
concern to me, and so the less
309
00:27:32.559 --> 00:27:36.440
I have to be behold into somebody
else, the more I can wait until
310
00:27:37.880 --> 00:27:41.319
other natural gas producers are shutting down, until supply sows down or until themand
311
00:27:41.359 --> 00:27:45.150
picks you just keeps you at the
table. So I like that. And
312
00:27:45.269 --> 00:27:51.950
then they made this deal where they
sold, they essentially sold a overriding royalty
313
00:27:52.109 --> 00:27:57.980
interest and the range of Fiftyzero net
service acors in southwest Appalachia up for six
314
00:27:59.019 --> 00:28:03.339
hundred million dollars, equivalent to about
twenty times free cash floil for two thousand
315
00:28:03.339 --> 00:28:08.099
and nineteen. And then they made
a smaller deal alongside that. They're going
316
00:28:08.099 --> 00:28:14.049
to put all of that towards reducing
debt, reducing their revolving credit, which
317
00:28:14.049 --> 00:28:17.410
is the lower interest rate. But
still it's a revolver. You want to
318
00:28:17.809 --> 00:28:22.450
keep that dry powder for when you
need it. And so you know they're
319
00:28:22.730 --> 00:28:26.049
they're almost getting this for free.
is their argument. Essentially. There's they're
320
00:28:26.130 --> 00:28:30.559
losing out forty eight million dollars in
cash flow, but then they're saving thirty
321
00:28:30.559 --> 00:28:36.759
million dollars in interest expense. So
you're almost you're getting like it ends up
322
00:28:36.759 --> 00:28:41.910
being a creative deal. And so
there is what that points to is there
323
00:28:41.109 --> 00:28:45.630
is to some degree, even if, I guess the royalty might cap their
324
00:28:45.750 --> 00:28:52.029
upside if natural gas bounces back,
it does show that there's interest in some
325
00:28:52.150 --> 00:28:56.740
of these assets and that if they
can get creative about how they monetize them
326
00:28:56.779 --> 00:29:00.099
while waiting for natural gas prices to
go higher, to continue to stay at
327
00:29:00.099 --> 00:29:04.900
the table, to be able to
produce free cashual like that's that's where this
328
00:29:04.980 --> 00:29:08.779
story and that's where the tech resources, which was a huge winner in two
329
00:29:08.819 --> 00:29:12.849
thousand and sixteen, I think.
I think that's where that parallel plays out.
330
00:29:14.329 --> 00:29:18.250
So yeah, I I don't think
that's a UN a reasonable argument.
331
00:29:18.289 --> 00:29:22.089
It's it's an argument that needs things
to go right, but there, I
332
00:29:22.250 --> 00:29:30.279
think you can see it. Okay, something I'm coming back to that I
333
00:29:30.319 --> 00:29:33.039
kind of wish was a little bit
more of a focal point in this article.
334
00:29:33.480 --> 00:29:41.430
I think we're talking about a lot
of industry level risks and I'm not
335
00:29:41.710 --> 00:29:48.710
sure how how this company's valuation,
since the discount is such a huge part
336
00:29:48.750 --> 00:29:53.859
of it. I'm not sure how
the depth discount relates to the peer group.
337
00:29:53.980 --> 00:30:00.299
So I'm looking at just some high
level stats on seeking Alpha and I'm
338
00:30:00.299 --> 00:30:06.220
seeing on a gappe basis. It's
actually top of the Peer Group, and
339
00:30:06.339 --> 00:30:14.490
the Peer Group here is defined as
southwest during energy company and Taro Resources,
340
00:30:14.690 --> 00:30:21.170
Cabot, eqt and Gulfport Energy.
So I don't know, caviat listener,
341
00:30:21.440 --> 00:30:25.079
how do you say that? I
don't know. God, listener, Locutur,
342
00:30:26.160 --> 00:30:30.200
caveat locutor, I think I would
detaiur Odtour. You're the I'm the
343
00:30:30.359 --> 00:30:36.869
lower. Well, I should also
be fauseous. But forward gap pe rich
344
00:30:37.029 --> 00:30:40.589
relative to the group, maybe in
the middle of the group. On non
345
00:30:40.670 --> 00:30:45.910
gap, trailing PE, on sales, middle of the pack, and on
346
00:30:48.150 --> 00:30:55.259
Ebitda and other metrics, seemingly part
of the pure group. So I guess
347
00:30:55.339 --> 00:30:59.339
that cuts really neither here nor there, because I think the argument here is
348
00:30:59.380 --> 00:31:03.849
that this company has been punished on
duly. I just think it's funny that
349
00:31:07.289 --> 00:31:11.089
I didn't get a great sense of
relative valuation from this. Did you?
350
00:31:11.329 --> 00:31:14.809
Did you pick up anything from the
article in terms of how we should think
351
00:31:14.809 --> 00:31:21.559
about this relative to the sector,
because we're talking a lot about industry exposure.
352
00:31:21.799 --> 00:31:25.119
You're going to take a huge natural
gas price risk if you invest in
353
00:31:25.200 --> 00:31:29.839
this company. So how do we
know that we're being unduly compensated for that
354
00:31:30.039 --> 00:31:34.029
when we invest in this company in
particular versus other ones. Yeah, I
355
00:31:34.150 --> 00:31:38.470
didn't get I didn't get a great
sense that the outor mentions something like southwestern,
356
00:31:38.549 --> 00:31:44.150
which is also long or I think
yet at least bullish about, which
357
00:31:44.190 --> 00:31:49.339
is also a company that similar market
cap and similar shart. CABOT oil and
358
00:31:49.460 --> 00:31:55.220
gas is viewed as sort of sounds
to me, the way the author refers
359
00:31:55.259 --> 00:31:57.779
to it, as if it's a
better run company. And indeed, there
360
00:31:59.140 --> 00:32:02.849
again, just using for stock price, they've been steadier over the last five
361
00:32:02.970 --> 00:32:07.569
years. Still Down, but it's
not been all in one direction. And
362
00:32:07.730 --> 00:32:10.930
what I think is, I guess
I meant to mention this at the top
363
00:32:12.049 --> 00:32:15.000
and I don't think we did,
but the way we sort of found this
364
00:32:15.119 --> 00:32:17.839
article, we were playing around.
We have new screen or tools on seeking
365
00:32:17.839 --> 00:32:22.880
alpha where you can rate, you
can search for articles based on the collective
366
00:32:23.000 --> 00:32:30.269
author sentiment or the collective quant scores. We have internal quat ratings or the
367
00:32:31.069 --> 00:32:36.589
collective cell side rating, and so
this is something you know. It's part
368
00:32:36.589 --> 00:32:39.190
of seeking alphes central also part of
proplus. While we mention it, but
369
00:32:39.990 --> 00:32:43.869
it is. So we would just
I kind of thought would be fun to
370
00:32:43.950 --> 00:32:47.980
look at. What are stocks that
authors really like but that the other two
371
00:32:49.779 --> 00:32:52.779
metrics don't like. And when you
look at range resources it was one of
372
00:32:52.819 --> 00:32:57.660
the ones at the top of authors
are bullish, but the quant reading is
373
00:32:57.779 --> 00:33:01.529
very barish and the cell side rating
is a hold, which, frankly,
374
00:33:01.690 --> 00:33:07.329
is very barish. That's verish for
the cell sidea yeah and so and yeah,
375
00:33:07.369 --> 00:33:12.130
and when you will just look at
it against peers. Our authors our
376
00:33:12.289 --> 00:33:15.839
the peers we provide in our site
are southwestern and Tarot resources, Cabot,
377
00:33:16.160 --> 00:33:22.839
equt and Gulf port. Our authors
are bullish on all of them. No,
378
00:33:24.039 --> 00:33:30.150
no comment. The cell side is
only bullish on and Tarot, CABOT
379
00:33:30.309 --> 00:33:34.589
and equt. The quant rating is
neutral on most of them, but bearish
380
00:33:34.670 --> 00:33:38.349
on equt and very verish on range
resources. So take that for what it's
381
00:33:38.390 --> 00:33:44.460
worth. I just think it's interesting. Yeah, I think here's a want
382
00:33:44.500 --> 00:33:50.059
to throw a quick theory out there. Go for dynamic. It's possible that
383
00:33:50.539 --> 00:33:58.569
see seeking out. The authors in
particular represent a more risk tolerant or even
384
00:33:58.609 --> 00:34:07.530
risk seeking group than the market as
a whole, which I think the market
385
00:34:07.570 --> 00:34:12.960
as a whole you could interpret as
kind of the quant rating aspect of things.
386
00:34:13.119 --> 00:34:20.679
The market sort of assigns a certain
value metric and the share price momentum
387
00:34:20.800 --> 00:34:25.510
is probably reflective of some aspect of
the markets perception, and then the cell
388
00:34:25.630 --> 00:34:30.590
side has a different sort of set
of preferences. So I just wonder whether
389
00:34:31.869 --> 00:34:39.420
you could make an argument that this
is actually ultimately someone has to be right,
390
00:34:40.179 --> 00:34:47.500
but maybe there's more risk aversion in
the other two analyzes versus the seeking
391
00:34:47.539 --> 00:34:54.610
out the authors who are probably targeting
out performance and maybe more tolerant of the
392
00:34:54.730 --> 00:35:00.690
idea that this thing could bite the
dust. But on the other hand,
393
00:35:00.730 --> 00:35:02.849
the upside is so huge. I
think that's the argument being made here and
394
00:35:02.889 --> 00:35:07.880
I kind of we keep coming back
to the idea of a levered play on
395
00:35:07.960 --> 00:35:14.679
natural gas and such a steep discount
that results in a potential rebound that's enormous.
396
00:35:15.639 --> 00:35:21.710
Maybe they're just further out on the
risk curve than the other two metrics
397
00:35:21.750 --> 00:35:27.949
we have here. We're back to
risk parody. Yeah, I bring up
398
00:35:28.469 --> 00:35:30.949
I think that's yeah, I think
that's reasonable. I think you know,
399
00:35:30.030 --> 00:35:36.699
there are lots of authors are prone
to write about things that they're already holding
400
00:35:36.739 --> 00:35:40.420
in their portfolio longer. Short,
I would without knowing I would expect the
401
00:35:40.539 --> 00:35:45.219
bell curve, especially once you get
out of the most hundred, a hundred
402
00:35:45.300 --> 00:35:51.369
most popular tickers. I would expect
the Bell Curve for author scores to be
403
00:35:51.769 --> 00:35:58.769
much more to two topped. I
would assume the bullish side is a bigger
404
00:35:58.809 --> 00:36:01.210
top. But then I would assume
there's more of a quest around bearish than
405
00:36:01.289 --> 00:36:07.079
neutral. Yeah, where it's Sular
eyes, whereas I would assume, I
406
00:36:07.119 --> 00:36:10.480
would take the cell side to just
have a more normalized distribution centered on bullish
407
00:36:10.800 --> 00:36:15.760
as hire to. Yeah, it's
just how the business is and so and
408
00:36:15.840 --> 00:36:17.909
then I don't know what the quant
ratings I have was to judge on.
409
00:36:19.829 --> 00:36:22.630
But yeah, I think that's reasonable
and I think it's I guess what that
410
00:36:22.750 --> 00:36:27.110
from the investing standpoint, because I've
and I'll give an example from something I'm
411
00:36:27.110 --> 00:36:31.349
doing in my own research at some
point. I I'm not making excuses here,
412
00:36:31.429 --> 00:36:36.860
but you have because I think with
the commodity plays it always becomes more
413
00:36:36.900 --> 00:36:39.579
obvious of all right, well,
what makes one oil producer different than another?
414
00:36:40.139 --> 00:36:44.099
Why should I differentiate? Why should
I pick one or the other?
415
00:36:44.699 --> 00:36:46.730
And you kind of have to study
them all to really, I think,
416
00:36:46.809 --> 00:36:50.889
to make reasonable choice. But at
the same time, you can just say
417
00:36:50.929 --> 00:36:52.409
I like this set up and go
for it. I don't know. That's
418
00:36:52.409 --> 00:36:57.210
sort of the balance you're making.
I'm just I'm looking at an industrial company
419
00:36:57.329 --> 00:37:00.050
that is cyclical, that is,
you know, on a downturn turn and
420
00:37:00.250 --> 00:37:05.920
poised, I would think, to
have a few more bad quarters and I'm
421
00:37:05.920 --> 00:37:08.239
just trying to so I've got this. I've started the spreadsheet and I like
422
00:37:08.400 --> 00:37:13.360
to do things more or less manually, where I'm looking at the metrics across
423
00:37:13.400 --> 00:37:15.909
twenty different companies and you got anything
else. That takes a lot of time
424
00:37:16.110 --> 00:37:20.070
and I, you know, I'm
dumb and do it very manually. But,
425
00:37:20.230 --> 00:37:25.789
like you know, equals average,
equals average. Know what I'm it'll
426
00:37:25.869 --> 00:37:30.739
take the average for you. I
what I'm doing is I'm taking I go
427
00:37:30.900 --> 00:37:36.179
to their ten ques and their ten
case and I like manually pull the trailing
428
00:37:36.260 --> 00:37:40.780
twelve nine month number. It's like
go to ten que, figure out the
429
00:37:40.820 --> 00:37:44.769
difference between this year and last year, then add that into the K.
430
00:37:45.130 --> 00:37:52.409
it's there's there are smarter ways out
there, but I'm very stubborn, is
431
00:37:52.530 --> 00:37:57.650
one word, and I'd like to
like to have my own cooking. I
432
00:37:57.730 --> 00:38:02.920
don't like to trust anybody else's fancy
data process. So, but anyway,
433
00:38:04.559 --> 00:38:07.719
that's where, yeah, that's where
the opportunity lies. Sounds like a great
434
00:38:07.719 --> 00:38:15.590
use of your time, but I
admire your commitment to integrity of your vy
435
00:38:15.869 --> 00:38:22.070
and such as it is. So
so where does that leave us for range
436
00:38:22.110 --> 00:38:25.150
resources? What's at your where do
you take where do you end up here?
437
00:38:28.539 --> 00:38:37.260
I I don't hate the idea.
I don't think I'm persuaded that there's
438
00:38:37.300 --> 00:38:45.889
an outsized opportunity relative to the pricing. I think for me too, I
439
00:38:46.010 --> 00:38:49.849
think the next steps for me would
be, okay, let's look at the
440
00:38:49.929 --> 00:38:54.530
debt maturities and let's look at the
interest expense and find out sort of what
441
00:38:54.960 --> 00:39:01.199
stress test test the opportunity to the
downside and sort of figuring figure out what
442
00:39:01.360 --> 00:39:08.800
could happen here if the markets more
or less right about the direction of natural
443
00:39:08.800 --> 00:39:15.469
gas prices and range resources ability to
realize value, and then having that downside
444
00:39:15.510 --> 00:39:19.550
in place, I think then we
could start to make an assessment of okay,
445
00:39:19.630 --> 00:39:24.780
what would a normalized valuation look like? and to me that if,
446
00:39:24.980 --> 00:39:30.780
if you can be zeroed out in
a bankruptcy, which is we've seen happen.
447
00:39:31.179 --> 00:39:35.260
I joked about bankruptcies and energy space, but it happens a lot,
448
00:39:35.340 --> 00:39:43.210
especially when you lever up. It's
it's a highly risky situation to have an
449
00:39:43.329 --> 00:39:49.449
expected dream of cash flows that are
definite versus revenues and earnings that are dependent
450
00:39:49.489 --> 00:39:58.920
on cyclical pricing. So I sort
of buy that there is a large upside
451
00:39:59.079 --> 00:40:07.989
case here. I don't know how
the disc distribution is made up and it
452
00:40:07.190 --> 00:40:12.789
may not be all that heavily weighted
to the upside versus the downside. That's
453
00:40:12.789 --> 00:40:20.110
certainly the market is not massively assigning
and upside probability here. We wouldn't have
454
00:40:20.349 --> 00:40:29.739
this strange valuation thing. I'm caught
up also in this concept of monetizing the
455
00:40:29.820 --> 00:40:37.929
asset base and now being able to
generate additional value for shareholders through reduced cap
456
00:40:38.010 --> 00:40:44.929
BACs expenditures and therefore sort of generating
greater free cash flow. I understand the
457
00:40:45.130 --> 00:40:54.880
idea there, but I'm hesitant to
buy it. I just don't quite buy
458
00:40:55.079 --> 00:41:00.519
that you can sort of toggle this
switch at will. I'd be a little
459
00:41:00.519 --> 00:41:07.230
more concerned that some of these assets
don't have necessarily the value that's reflected on
460
00:41:07.349 --> 00:41:13.510
the balance sheet and then maybe once
you discount them, then the the valuations
461
00:41:13.630 --> 00:41:22.059
starts to look a lot more fair
and I am not positive that management's new
462
00:41:22.139 --> 00:41:27.500
direction is necessarily going to move the
needle one way or another one probably the
463
00:41:27.579 --> 00:41:31.619
overriding factor is out of their control, which is gas prices. So I
464
00:41:31.780 --> 00:41:35.889
like it in the sense that it
is contrarian and I like it in the
465
00:41:36.010 --> 00:41:44.889
sense that there is a reasonable,
substantial upside case to the story. I'm
466
00:41:44.929 --> 00:41:52.599
not overwhelmingly convinced that the overall distribution
of outcomes is all that attractive, but
467
00:41:52.679 --> 00:41:55.760
I like but I think it would
be worth looking at in more detail.
468
00:41:57.679 --> 00:42:02.909
What about you? Yeah, I
think high level roughly agree with the conclusion.
469
00:42:04.030 --> 00:42:12.829
I think that three things I would
want to interrogate further are how it
470
00:42:12.949 --> 00:42:15.710
fits in with the rest of the
industry and what's going on with the industry.
471
00:42:15.820 --> 00:42:21.019
Like why range resources were as anything
else. If I'm if I'm if
472
00:42:21.219 --> 00:42:23.579
this is just a basket of plays, fine, but if it's if I'm
473
00:42:23.739 --> 00:42:28.780
coming, if I want exposure natural
gas, why should I consider range resources
474
00:42:28.860 --> 00:42:34.090
primarily? I think that was something
that wasn't discussed here. I think the
475
00:42:34.329 --> 00:42:38.809
cat acts. I'm always interested.
Is this feasible that they'll continue to maintain
476
00:42:38.969 --> 00:42:45.639
that lower APP x rate that would
be. That would be something you know,
477
00:42:45.719 --> 00:42:50.159
that's an important piece of this story, and so I think that's something
478
00:42:50.480 --> 00:42:54.679
we can't really neither of us are
capable of really stress testing, but I
479
00:42:54.800 --> 00:43:00.590
think that's interesting. And then I
would say the last thing that I would
480
00:43:00.590 --> 00:43:05.989
just be interested in is I think
with a relative you should be able to
481
00:43:06.030 --> 00:43:10.110
do some sensitivity tables here and just
kind of see what like even more than
482
00:43:10.190 --> 00:43:15.019
the spread of normalized distributions as far
as returns, just in terms of what
483
00:43:15.300 --> 00:43:20.420
the company would be making under different, yeah, gas prices. That to
484
00:43:20.500 --> 00:43:23.500
me doesn't seem like could be a
ton of that seems important and doesn't seem
485
00:43:23.500 --> 00:43:30.329
like would be two out of manual
ttm type of spreadsheet. I think we
486
00:43:30.409 --> 00:43:34.530
can agree. And makes for a
boring Sunday. It makes for a boring
487
00:43:34.690 --> 00:43:38.929
study, but sometimes that's the sacrifice
you have to make to find Outa Mike.
488
00:43:40.289 --> 00:43:46.760
Indeed, not that it's worked for
me, but so I had one
489
00:43:46.880 --> 00:43:51.519
thought, a glimmer of a slot
here, and I just want to I'll
490
00:43:51.599 --> 00:43:58.190
just put it out there and you
react how how you see fit. It's
491
00:43:59.550 --> 00:44:07.510
natural gas time shares. You take
the property and then whoever wants they can.
492
00:44:07.590 --> 00:44:10.739
You can have a couple weeks trying
to extract the gas and then when
493
00:44:10.780 --> 00:44:15.780
your time is up, then you
have to move out and you just sort
494
00:44:15.780 --> 00:44:20.019
of slice it up that way and
then you know different time slots that have
495
00:44:20.179 --> 00:44:23.329
different values and we cut this up
to make for a more just, efficient
496
00:44:23.409 --> 00:44:30.530
market in general, and if somebody's
unhappy with their time share, they can
497
00:44:30.610 --> 00:44:35.010
just say they had a bad case
of gas and move on. Oh No,
498
00:44:37.369 --> 00:44:44.000
Oh no, Oh, Daniel,
oh no, we've been dancing around
499
00:44:44.000 --> 00:44:46.840
it the whole time. We the
gut the story natural gas. Well,
500
00:44:46.920 --> 00:44:52.440
I guess we finally reached a well, the point. If you're allowed to
501
00:44:52.480 --> 00:44:54.230
go back to time shares, I've
allowed to go back to dead okay,
502
00:44:54.429 --> 00:44:58.190
Y, think. I think that's
that was the premise. I I was
503
00:44:58.309 --> 00:45:00.269
going with their. Well, I
was trying to think, you know,
504
00:45:00.349 --> 00:45:02.269
if we're bullish natural gas, Daniel, which I think you know, you
505
00:45:02.469 --> 00:45:07.980
and I are, got eventually come
around on that, we could just start
506
00:45:07.980 --> 00:45:13.500
our own little exploration company, get
out there and apple latch, open had
507
00:45:13.619 --> 00:45:19.219
some hard hats and start booking some
historical costs. I like, apart carrying
508
00:45:19.300 --> 00:45:24.010
value on the balance sheet, just
feel like so enormous H R dug another
509
00:45:24.130 --> 00:45:32.610
bad hole. Shoot. I guess
you prefer of all costs, as you're
510
00:45:32.650 --> 00:45:36.679
a Kount of meat. We're dude. We will not be able to use
511
00:45:36.719 --> 00:45:42.159
any other it be full carry.
Otherwise, I balance you will be the
512
00:45:42.400 --> 00:45:47.920
disaster. You know, we've come
up with a lot of business ideas.
513
00:45:47.960 --> 00:45:52.750
I'm behind the idea. I don't
think that that one. I think that
514
00:45:52.869 --> 00:45:58.750
one's probably towards the bottom of the
list. I gotta say I like Appalachia.
515
00:45:59.630 --> 00:46:07.659
I be happy to go visit.
I don't know that drilling holes there
516
00:46:07.739 --> 00:46:14.059
would help anybody. Yeah, well, all right. The search continues for
517
00:46:14.179 --> 00:46:21.409
our great next great investment opportunity with
our own time and effort, but we
518
00:46:21.449 --> 00:46:24.449
haven't found it here on this podcast. Listeners were open to suggestions, but
519
00:46:24.570 --> 00:46:29.289
I think we should leave it.
They're all right, all right, thanks,
520
00:46:29.369 --> 00:46:34.119
Mike. All right, Daniel,
take care bike. Thanks for listening.
521
00:46:34.119 --> 00:46:37.000
To be on the idea. I
hope you enjoyed it. We're pulling
522
00:46:37.079 --> 00:46:39.199
into the end of the year stretch
and want to remind you to watch out
523
00:46:39.199 --> 00:46:45.480
for bonus episodes some of our top
authors. On Friday featured Tim tightment of
524
00:46:45.519 --> 00:46:51.309
investing fiber one robust she's so far. Get them on this same channel,
525
00:46:51.469 --> 00:46:59.710
because always have a chance to raise
US early, because you production thank you
526
00:46:59.750 --> 00:46:59.989
for this
