Energy Prospectus

I just finished listening to the weekly podcast. One of the things that is distressing about your (actually any) natgas picks is that if the mkt believes that there will be a surplus of natgas shortly and, as a result, investors avoid them, what good does it do that they are actually making money now? I am sure that I am not your only follower who took a bath on one or more of the gassers (in my case two) and, as a result, I am very leery of investing in them, intrinsic value notwithstanding. It seems that as an investment thesis the dynamics are working against gpor, et al, and will continue to do so.

Each of you must develop your own macro view and invest accordingly. All I can tell you about GPOR is that at a realized natural gas price of just $2.40/mcf they are VERY PROFITABLE. Note on the forecast model that the natural gas price used in the forecast model for all of 2019 is $2.50 and GPOR should earn $1.67/share with operating cash flow of $5.15/share.

I cannot recall a company with double digit production growth, generating free cash flow from operations and with lots of running room that traded below 3X operating cash flow per share.

My job is to generate ideas and show you profitable companies. What you invest in is up to you.

As an investor in GPOR, I find myself in a similar quandary.

I have a general observation that may prove helpful. As you know, there has been a tremendous shift capital from managed funds toward low-cost ETFs. With the volume of money shifting into ETFs, it is shifting money into "Indexed" stocks. As long as new money is flowing into indexed stocks, it will force prices upward on those shares, boosting the return of ETFs and further encouraging folks to shift their money out of managed funds to ETFs. We appear to be in a circular loop which is reinforcing shift from managed funds to ETFs.

Unfortunately, the managed money historically purchased companies like GPOR and many of the companies in this portfolio. This trend is driving capital out of non-indexed stocks, leaving these companies primarily in the hands of individual investors like us. And we as individual investors can easily be pushed around by the shorts who are just absolutely dog-piling in to push down share prices. I can't quite assess whether their end-game is to depress prices enough to take it over at bargain basement prices, or just push around us smaller investors. Either way they're winning in the short run. In the long-run, as Dan explained, GPOR is a great company. They're management team is superior, they make prudent investment decisions and are good stewards of shareholder funds. The underlying demand fundamentals of the natural gas market are improving through exports, coal-to-gas switching of our power plants, increased domestic manufacturing production due to improving economy and cheap nat gas feedstock. The demand for natural gas isn't going away and it should support prices in ranges that GPOR has already demonstrated profitability. Maybe someday the market will find GPOR and chase the shorts off, but until then, I'm going to take advantage of this opportunity and buy more for my long-term portfolio.

I just checked the short interest on GPOR. There is a 7.8% short interest as of Friday, up 1.8% AFTER GPOR's production announcement. These are smart people. The absolute bravado of increasing a short after an announcement that basically says they'll beat consensus estimates is just unfathomable to me. It just reinforces to me that the shorts have found a group of stocks they can push around, and GPOR is one of them.

What I have seen over the years is that if an upstream company's stock trades below break-up value for long, eventually it is taken over by a larger company or sells off assets (Devon is going this route now). The basis for this is that if a large-cap can buy proven reserves on Wall Street cheaper than they can build them by exploration & development that is what they should do.
Specific to GPOR: We just need to see more interest in the "gassers".