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#EFT
I was once a PortCo Boi pursuing an acquire/exploit/flip strategy and rolled a snake eyes.
Like everyone else I am trying to stay relevant in the space, so looking at PDP deals where my underwrite case is a blow down with minor cost structure improvement.
I was once a PortCo Boi pursuing an acquire/exploit/flip strategy and rolled a snake eyes.
Like everyone else I am trying to stay relevant in the space, so looking at PDP deals where my underwrite case is a blow down with minor cost structure improvement.
At a conversational level, I always thought this strategy made sense, as I dig into the details I am beginning to realize a PDP blowdown is just as grifty as 64 wells per section.
Ok, first cost of capital.
RBL market for new deals is almost extinct
Let’s say you can get a new RBL, it will be at least +500 bps with no aggressive draw out of the gate and the loan coverage amount will be a lot lower than the past
Mezz and HY now have a WACC similar to PE
RBL market for new deals is almost extinct
Let’s say you can get a new RBL, it will be at least +500 bps with no aggressive draw out of the gate and the loan coverage amount will be a lot lower than the past
Mezz and HY now have a WACC similar to PE
So the full capital stack will likely have a WACC of at least 10%..so buying a deal at PDP PV10 means you make no money...
Ok, so let’s pretend we can buy it at PDP PV15
Ok, so let’s pretend we can buy it at PDP PV15
Great! I have a deal in hand at PDP PV15.. let’s look at the details..
PV15 or a ROR of 15%.
In this case I have a “peak” ROI of 1.5x before my CF goes negative due to P&As, BUT my full project ROI is ~1.0x due to P&A...WTF?
PV15 or a ROR of 15%.
In this case I have a “peak” ROI of 1.5x before my CF goes negative due to P&As, BUT my full project ROI is ~1.0x due to P&A...WTF?
Ok that sucks, let’s buy at a PV25 =ROR of 25%...BOOM killing it
Terminal ROI is now...wait for it...1.4x.
Terminal ROI is now...wait for it...1.4x.
Said another way, if you can get a really good deal, PV25, you have like a 4-5 year payout, 5-8 years of positive FCF after that then NEGATIVE FCF due to P&A...
Said another FCF yield is a scam due to end of life ARO
Under the hood PDP deals appear to suck as much as much as tier 2 acreage in the Permian..
It makes me want to buy Haynesville acreage because I believe I can get better returns than a PV25 / 1.4x ROI PDP deal..
I am beginning to think you need to drill wells to make money in Oil and Gas, ha!
I am beginning to think you need to drill wells to make money in Oil and Gas, ha!
And don’t get me started about PDP on federal lands...
Can someone tell me how this strategy will really make money? I can’t figure it out.
For me the only way that makes sense to make money playing PDP is minerals or ORRIs... same yield with no end of life degradation to ROI. Prove me wrong
