RE: What your BD team should be working on.

Like the old joke about lawyers and the ocean, Monday’s press release presented a good start. First, congratulations to Mr. Papa who had a long and distinguished career and I applaud him for his decision to spend more time with his family. After 52 years, he deserves it.

To the analysts that said “the stock might under perform in the wake of his retirement”… you have seen the stock chart, right? Underperform what? The coronavirus (in that it’s just maiming and not killing it’s shareholders?) Yeah. That’s what I thought. Go back to sleep.

But it is subtext to that transition plan announcement that is far more important. No new board members. Dividing the role of Chairman (every company should do this). Promoting the COO to CEO and the VP Geosciences to COO (well done not making a lawyer COO, see joke above). If ever there was a “for sale” sign, that’s the one. No new vision, no new team, no new leader. I applaud CDEV, even though I’m still waiting for them to reach out.

Now. To the SMOG. $2.062 billion against $1.064 billion in long term debt. Add $225 mm as the sell down for the water system to balance cash flow (again, well done) and 280 mm in outstanding shares, we get $4.38/share PV-10. Using XEC has the example from #technicaltuesday yesterday who trades at 239% of this value (as opposed to 59%), we see how an equity premium can be paid by a buyer and still be wildly accretive. But, I need to make this point very, very clear. This is a relative valuation game. On PDP only, you look bad. Your peers look absolutely atrocious. You MUST merge to survive until the day when the world realizes all the $60 WTI marginal barrels have been produced. To do that, you can’t spend $80 mm a year of G&A.

You cannot survive as a stand alone entity.

I’ve said it before, and I’ll say it again. M&A isn’t dead. It’s just that share prices from 2018 aren’t realistic. It’s time. Consolidate. Improve the cost structure. Shut down rigs. Reduce management team G&A. Improve borrowing capacity (circa WPX). Let prices stabilize on the back of declines in the US.

This sh*t isn’t that hard. But you have to actually do something.