I have updated my forecast/valuation model for JONE and posted it to the EPG website.
Take a hard look at row 50 and the RED BOX.
Jones Energy (JONE) Update
Jones Energy (JONE) Update
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Jones Energy (JONE) Update
So the stock is trading at $1.07.What is wall street missing? Is it too small for any coverage? I think I recall some investment group or hedge fund putting pressure on them to monetize some of their assets.Your thoughts on the upside and is the merge as viable as Stack and/or Scoop? Thanks
Re: Jones Energy (JONE) Update
1. Jones is funding ~40% of this year's capex program with debt. Wall Street hates that. I'm OK with it as long as the value of their proven reserves is growing faster than the debt. The company's year-end reserve report should clear this up.
2. Jones made some accounting errors in Q2 that had to be fixed in a amended 10Q. Wall Street does not like companies that have sloppy accounting. I don't either. PricewaterhouseCoopers LLP is their audit firm and they will get this issue fixed.
3. In the minds of Wall Street, Merge is still not a proven area. So far the wells there look very good. Take a look at the results that Continental Resources (CLR) and Gulfport Energy (GPOR) are reporting in the area very close to were Jones is drilling. Merge wells are "gassy", another thing Wall Street does not like. You can see Jones' production mix at the bottom of the forecast model.
4. Jones has been living off of large cash settlements on their hedges ($132 million in 2016 and $69 million so far in 2017). Their really good hedges expire in Q4.
Go to my forecast model and take a hard look at the RED BOX. That will explain what I like about it.
I know the forecast models can be a bit "intimidating" for the non-accountants out there, but they are really quite simple. Revenue - Expense = Net Income
Cash Flow From Operations is just Net Income +/- the non-cash items, primarily DD&A, Stock based compensation, non-cash mark-to-market on hedges and deferred income taxes. Just remember that Operating Cash Flow Per Share is 100X more important than GAAP Earnings Per Share.
Based on my forecast, Jones will be fine if oil stays over $50/bbl. < 85% of forecast oil production for 2018 is hedged at $51/bbl.
All small-caps have more risk than the large-caps in our Elite Eight. Size matters in this business because it is very capital intense.
2. Jones made some accounting errors in Q2 that had to be fixed in a amended 10Q. Wall Street does not like companies that have sloppy accounting. I don't either. PricewaterhouseCoopers LLP is their audit firm and they will get this issue fixed.
3. In the minds of Wall Street, Merge is still not a proven area. So far the wells there look very good. Take a look at the results that Continental Resources (CLR) and Gulfport Energy (GPOR) are reporting in the area very close to were Jones is drilling. Merge wells are "gassy", another thing Wall Street does not like. You can see Jones' production mix at the bottom of the forecast model.
4. Jones has been living off of large cash settlements on their hedges ($132 million in 2016 and $69 million so far in 2017). Their really good hedges expire in Q4.
Go to my forecast model and take a hard look at the RED BOX. That will explain what I like about it.
I know the forecast models can be a bit "intimidating" for the non-accountants out there, but they are really quite simple. Revenue - Expense = Net Income
Cash Flow From Operations is just Net Income +/- the non-cash items, primarily DD&A, Stock based compensation, non-cash mark-to-market on hedges and deferred income taxes. Just remember that Operating Cash Flow Per Share is 100X more important than GAAP Earnings Per Share.
Based on my forecast, Jones will be fine if oil stays over $50/bbl. < 85% of forecast oil production for 2018 is hedged at $51/bbl.
All small-caps have more risk than the large-caps in our Elite Eight. Size matters in this business because it is very capital intense.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Jones Energy (JONE) Update
Would you be comfortable buying their preferred?
Re: Jones Energy (JONE) Update
For me: At this point in the rebound phase the Elite Eight is the best place to be for me. Why take any risk when AAA quality stocks are trading at deep discount to valuations?
JONE is High Risk with High Reward potential if they keep getting good Merge area wells. I lot more upside in the common stock than the preferred.
JONE is High Risk with High Reward potential if they keep getting good Merge area wells. I lot more upside in the common stock than the preferred.
Dan Steffens
Energy Prospectus Group
Energy Prospectus Group
Re: Jones Energy (JONE) Update
Reminder from Jones that they're seeking a financial boost for Anadarko drill plans and balance sheet. Financial redetermination at high end of range, so lenders have some conviction.
https://globenewswire.com/news-release/ ... tives.html
https://globenewswire.com/news-release/ ... tives.html
Re: Jones Energy (JONE) Update
Press release seems positive.As per their conference call,they are extremely positive with results from Merge acreage.This is what they were looking for because of the options it will give them.They mentioned that they had hoped to have this updated determination in time for the 3rd quarter call.