Yet Another Value Podcast - David from Kingdom Capital on UNTC

Episode Date: August 2, 2022

David Bastian from Kingdom Capital discusses his bull thesis for Unit Corp (UNTC).David's UNTC write up: https://seekingalpha.com/article/4503262-unit-corporation-heads-win-tails-dont-loseChapters0:00 Intro2:30 UNTC overview5:00 Discussing UNTC's sale process11:20 Thoughts on UNTC's prelim Q2 numbers14:45 What is the market missing with UNTC?18:00 What is UNTC's major shareholder thinking?23:20 Why did the Gulf assets sell for such a discount?27:15 Can UNTC increase their production?30:15 UNTC's drilling / rig segment33:30 Valuing drilling38:15 Midstream's value46:15 Discussing capital allocation / returns49:20 UNTC's warrants52:40 UNTC's SOTP1:01:00 Generalists in energy

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I'm your host, Andrew Walker. If you like this podcast, I mean a lot. If you could rate, review, subscribe, wherever you're watching or listening. With me today, I'm happy to have David Bastion. David is the, he's a CIO over at Kingdom Capital. They've got an active Twitter account. They've got an active seeking alpha account, which I really think you should follow. He posed some really interesting ideas, one of which we'll talk.

talk about today, but I'll pause there. David, how's it going? Doing well, Andrew. Thanks for having me on today. Hey, thanks for coming on. Let me start this podcast the way to do every podcast. First, disclaimer to remind everyone, nothing on this podcast is investing advice. Please consult a financial advisor. That's always true on this podcast, but today we're going to be talking about a stock that, you know, it's not the smallest stock ever, but it is pretty small, but the bigger thing is it's on the pink sheets. It's relatively liquid. And everybody should just remember that comes with extra risk factors. There's extra liquidity issue. So again, please, not an investing advice, consult a financial advisor. Second, a pitch for you, my guess, you know, I've been following you

for probably five months or so, and you're just banging out one idea, one banger idea after another over on seeking alpha. Read your Q2 letter. I mean, this is the one that I think I found you from, but there's a ton of other interesting ones. We can talk about WTI. We can talk about some of the other names, but yeah, look, I've just found you to be a great source of ideas. It's been good getting to know you over the past couple months, and I'm really excited to talk about this one. So all that out the way, let's turn into the company we're going to talk about. The company is Unit Corp. The ticker is UNTC.

I'll remind everyone, pink sheet stock so you can buy and sell it pretty normally, but it is going to be more illiquid. I'll turn it over to you, though. What is Unit Corp, and why are they so interesting? Sure. Thanks, Andrew. Yeah, so UnitCorp is an oil and gas company based in Oklahoma. They've got three main segments, so they're a little more diversified than a pure play production company. Units per segment is they're upstream where they do oil, gas, and natural gas liquid production from their various wells in Oklahoma.

And their second segments, the midstream, where they actually process and move a lot of the natural gas and oil out of their properties in two various refining locations. And lastly, they've got a rig statement where they actually do contract drilling for other producers to help them open up new wells. Yeah, you know, it was looking at a sale process for their upstream segment earlier this year. They recently terminated. That was one of the things that got me paying attention to it. And so now they've kind of committed to being an operating company here instead of potentially kind of winding up most of their properties here. So, yeah, that's a very high-level overview.

The company's trading about a $500 million market capitalization right now, and they're looking at close to $200 million of cash on the balance sheet after a sale. They closed at the beginning of July. So it's about a $300 million enterprise value from where we're trading today. Perfect. I think that's a great overview. And, you know, I think the most important place to start with is the sale process, because I know myself personally and a lot of other people, we got involved here because in January,

Reuters runs a report that says, hey, Unicorp is looking to sell themselves. And Unit actually puts out a press release. And if you emailed the company, they would send you even their sales deck. But they, Rooters runs the report that says Units looking to sell their assets, and they're hoping to fetch around $1 billion for selling their oil and gas assets. And myself, a lot of other people did that math really fast. And we said, hey, Units market cap is $500 million. They're looking to sell their oil and gas assets for a billion. And they've got two other assets in there that they can't really be worth negative.

So, yeah, you know, this is a double on the oil and gas assets and you get everything else for a freight. And I think a lot has changed since then. But the biggest, if I just told you that story, the biggest headline change was they came out about a month ago and said, hey, we're calling off the sales process. We're just going to be a standalone. We're probably going to return a lot of capital. shareholders, which I'm sure we'll discuss. But if I told you that whole thing, I think my first pushback would be, oh, cool, well, they wanted to run a sales process. Nobody wanted to buy them overvalue. Like maybe a billion's overvalue. Maybe it's only 700 million. But, you know,

they looked at, can we get proceeds that are greater than our market cap? And the conclusion they told the market was no. So why is that interesting? I'll pause there. sure so yeah i think the uh the interesting part you know you mentioned that they were sending out the sales deck back in january when they when they launched the process um and they kind of they put out an estimate that the present value of their uh their assets in the upstream segment and the 10% discount rate was around 760 million dollars yep um so that initial billion dollar estimate i think a lot of people looking at and said oh that's probably optimistic and you know You and I looked at that and said, well, even if it's optimistic, there's plenty of room for that to be optimistic and for me to make money here.

And that was when oil was trading at $80 a barrel and natural gas was five or so. And since then, you know, we had the Russian invasion of Ukraine and prices have really exploded. So, you know, fast forward a little bit. net. If I can just hop in there because I, you know, I follow this up pretty closely. So the day that they priced, the day that they put their desk deck out, the strip that they use, let's drop 2022 because 2020 prices can fluctuate widely. The strip they use oil from 2023 to 2030 was averaging $63 per barrel and gas was averaging $3.30. And as you and I are speaking, oil is averaging $75 per barrel and gas is averaging $5, right?

So we are talking an enormous increase in not near-term energy prices that are factoring in like a short-term squeeze or something. These are long-term strip prices. We're talking about a massive increase. Yes, and that's exactly where the thesis went from, hey, this is probably worth a lot to, this is worth way more now at Strip.

And if you even go back to, all right, well, if prices do go back to 50 a barrel and $3 gas, you're still looking at, you know, like in January, a $750 or so million asset at a 10% discount rate. And that's also ignoring future production gains they can do in the other two segments of the business. Yep. Yep, that's perfect.

So, look, but I do want to circle back to if their assets were so valuable, you know, why couldn't they get a bid that was approaching their value or a bid that, well, talk about the illiquidity and the major shareholder in a second, but a bid that at least got the board to say, well, you know, we're trading for $500 million. We think we're worth a billion, but we got an $800 million bid. And, you know, maybe it just makes sense. Take the bird in the hand versus the two in the bush. We can talk about the bankruptcy later. They emerged from bankruptcy two years ago. Like, this is a home, home run result for everyone. So why do you think that sales process didn't kind of work out? Sure. Yeah, I think from what we've been seeing, there hasn't been

a lot of M&A in oil and gas in the last few months, especially since prices really went up. And it seems like both buyers and sellers are kind of sitting on their hands, trying to figure out where things are going to settle. I think in a chaotic environment like that, you don't really want to be a buyer necessarily. It could work out great for you. But if you bought when prices were up at 120 and 9,

a couple months ago, you'd already be a little worried about what numbers you were paying off. If you're buying here today, it could end up looking really good or really bad. But the volatility day-to-day here is high enough that I think when I had spoken with a company, I got the impression that there was just a very significant bid-ask gap, as it were, on properties right now with a lot of companies being unwilling to pay prices that might end up looking bad in a very quick time frame. And they want to see some more stability first.

Yep. I guess long short is you're just not seeing anyone that wants to pay the TV10 values in this environment. That's my take as well. And UNTC is not the only company that has tried to engage in some asset sales, asset swaps that has told me, hey, you know, we brought these assets. I'm not saying they're the best assets in the world, but they're certainly not the worst assets world. You know, we brought kind of average assets to the market, said, hey, here's these assets. And every bit, like, here's the PV-10.

And would we take PV-12? So, PV-10 is their present value of the cash flows discount at 10%. Would we have taken PV-12? So discounted at 12%, maybe. But every bid we got was like PV-20 plus a discount to the curve, right? So if oil is at 80, they were, they were pretending oil was at 70 and bidding that a 20% discount. And they were like, look, at those prices, we just think we'd be giving them away for free. like we can't do that and again that's what i think you and cc found and i've talked to several

oil and gas companies who've run into similar issues so i think it is pretty credible and it kind makes sense right if you're a bitter and last year gas was three and now you're getting asked to pay gas seven dollar prices it's a little tough to think that gas is going to stay around there yeah no and that's where i really appreciated the company that started they started hedging their production that they had that was left floating around a hundred dollar oil and dollar gas. So I think they've looked at this as well, we'll make some cash here and then reassess kind of as time goes on and actually develop these assets. Yeah, I agree. And for those who are listening to in maybe a week ago, I think Dave and I actually started messaging around

and decided to do the UNTC podcast on the heels of it. But a week ago, they came out with, hey, here's our preliminary Q2 results. Here's our balance sheet. We've started buying shares back again. And you know we're going to talk about share buyback at some point. But I think the thing, all of that was great, but the thing that I was really positive on was they had stopped their hedging process completely late last year, early this year, while they ran the sales process. And once they called the sales process off, they started hedging again. And prices were obviously, you know, very high over the summer. So they were getting, they were getting crude oil hedges done at $104, $95 per barrel.

they got some Nat Gas Hedges done at $9 per MBTU or whatever it is. And I've written about this on the blog frequently. There are so many companies that were hedging when gas was $3 this year, last year. And now that gas is nine, they're not hedging. And you're like, hey, you can either hedge or not hedge. But what I don't want you to do is hedge when things are bad and then not hedge when things are good. And it was nice to see them go right back in the market and start hedging again. I'll pause there unless you add anything, comment.

I miss anything? Yeah. No, I think that's a great point. And just, I mean, those relatively small oil and gas hedges for the next, you know, nine to 12 months adds about $70 million of revenue they're going to do just from those hedges. So I think one other aspect of that is that you saw their realization on gas in Q2 dropped a little bit versus Henry Hub. So traditionally they get a slight discount to where gas is trading just based off of being able to move it and contact timing, things like that. So I also like the fact that hedging at nine kind of removes some of the risk from where they're going to realize. I mean, all right, they hedged it at nine, whatever, we're going to get $9.

So they're definitely de-risking the situation. I mean, as we talked about earlier, the enterprise value right now is around $300 million. So walking in 70 million worth of revenue, when your production cost is $6 a barrel of energy, it's pretty much 100% margins when you're selling it at 100. So, yeah, I think that being able to do that selectively, and then you sit down next spring and say, all right, where's the strip at? Let's hedge a little bit more. I think it makes it a very safe investment versus some of these unhedge producers that

I think are maybe more popular in a rising price environment, but get killed on the way down. Yep, yep. I hear that because I've written about it. We were just talking about it. There are so many unhedged producers that if you run the strip, they look so undervalued right now, but you are taking strip risk.

And I personally don't know a good way to hedge strip risk, especially on NatGas. I don't know a good way to kind of hedge that out unless you are a producer. And the nice thing about a producer like UNCC that's hedging and they're doing it when prices are high is, that risk starts to evaporate. Anyway, we've talked about the sales process, which I think is question number one on, it's going to be a question number one on anyone's mind who's new to the story and is just I've been in the story. But I want to step back. My first question I always like

to ask is, we're going to dive deep into lots of stuff. We already dove deep into some things, but look, market is a really competitive place. Even for an e-liquid stock like UNCC, this is a five, six hundred million dollar market gap company, like a lot of people get in here. When I talk to oil and gas people, like many of them do know this company. This used to be a much bigger, more liquid publicly traded company. So this can be found if people are looking for it. So market's a public place. Why is UNCC? What is the market missing that you're seeing, that I'm seeing, that makes UNCC a compelling investment that will generate risk-adjusted album going forward? That's a great question. Yeah. So I think, like you mentioned, it is on the pink sheets. People are

aware of it. But it's definitely harder to get a position in in terms of the trading volume. One of their legacy holders out of the bankruptcy process, Prescott Group, owns over a third of the outstanding shares. There's two other holders that have about a 15% position. So over half the stock does not trade. So there definitely are people who would want to take a position in this where getting the shares, if you go to the daily volume, is sometimes in the 1,000, 2,000 share. range. It is tough to get in and out of. And for those that want to maintain some liquidity, this might not be the name for them. For a fund like us, where we're managing about $5 million, liquidity is still such that, you know, if we wanted to blow out a position

in a day, we'd have to probably realize a loss. You know, it may not be substantial, but that definitely creates some risk around trading the stock versus, you know, you don't get much much smaller than we are when it comes to being able to get in and out of stuff like this. So I understand that. You know, we have a longer term focus. We're willing to bear some liquidity risk in exchange for what we see is undervalued stock. But, you know, if you wanted to go out and I think one of the best comparable stocks on this

is Sandridge Energy that's also based in Oklahoma and has pretty similar profile production. If you wanted to go invest in that, you'd be able to get in and out. You get an options chain that you can use to have. has your risk in the stock if you wanted to, say, buy puts on your position, you know, doesn't have that, and it has some pretty concentrated ownership. So I think that's one of the risks. Yeah. People really, people don't like the hedges because it does remove some of the upside.

If gas goes to $20 next week, it's not going to see much of that. Yeah. They could layer into new hedges, but. No, I'm 100% with you. people don't like the hedges and sea liquid, but you mentioned Sand Ridge. And like, I know a lot of people who think Sand Ridge is very interesting. I've looked at it. I've done the math on it. Like, yeah, if gas stays here, it's going to be really interesting, but you're exposed to the gas downside. And like, I do feel like Sand Ridge actually because it is such a pure

play, it is so unhaged and it is kind of cash rich. I do think Sand Ridge, Sand Ridge trades, like, it's probably the most expensive on a mark-to-market basis of any of the energy companies. I know. Now, that's not saying much, but it probably like is the closest to their fair value of the PB 10. I think I'm just talking a little bit out of, but I think I would stand by that. I'm kind of looking at a simple model. You mentioned one of the key things I think about UNTC, Prescott who owns over a third of the company. After the buybacks, they probably own about 40% of the company. And look, I don't know how much they're running, but if I did the math on kind of the last 13F and everything. I think UNTC is like a mammoth position. You've got to remember

UNCC. We can talk about the bankruptcy in a second. Emerge from bankruptcy. I think they got their stock from the loans and the stocks like a 10x since then. So it was a big position that 10X it's now like they're kind of a unTC, if I'm right on their AUM, they're kind of like a unTC book with a couple of other things on the side. So this is a huge position for them. And I think the thing a lot of people wonder is, what does Prescott do? Because if they're going to try and sell on the open market, they're going to crush the stock. I know for me, I always thought they might want to take a bid in the process they just ran, even if it wasn't quite full value just because they looked and said, hey, this is so much of our book,

we own 40%. The only way we get out is a sale. So even if we're selling for 70% of fair value, if it realizes a mark above where the stock's currently trading, let's just take that, get the cash and redeploy. it. So I think they're really critical here. And I just want to hear how you think they interact with the company, what their plans are. Sure. Yeah. And I'd be honest, I've not talked to Prescott. I do not know what their intents are with business. So any serious comments there, it's just going to be speculation. My impression is that they had a pretty big loss on the bonds going into the bankruptcy process and their stake there. And that they've, like you said, they've done great

on the stock coming out of that. They are one of the reasons the hedges exist as much, in my perspective, is that they're trying to add in as much as they can to de-risk this situation. I think one issue that we'll run into here is that there's a lot of net operating losses at unit corporation that came through that bankruptcy process, which allowed them to avoid paying taxes at this time. And were the business to be sold and were Prescott's, or were Prescott to trip over the 50% ownership threshold, those NOLs will be put in jeopardy.

So I think that there is an aspect where they're kind of consent to sit tight right now and maximize the value by not doing anything. Once those NOLs are out of the way, once they've been used up from their income they're generating right now, I think that that would maybe open the door for them to do something else. but the most value right now at unit is realized by having those and not tripping any change of control provisions and causing those net operating losses to go away. Perfect. And just one more quick question on Prescott.

Prescott has a member on the board, right? And I'm sure Prescott has a member on the board and the board knows Prescott owns 35, 40% of them, whatever. But just to confirm, like, do you think Prescott, when the company got, when the company ran this process, looked at the bids and said, hey, we'd rather stand alone than hit, than hit any of these bids. Do you think Prescott kind of blessed that strategy and said, yeah, you're right. We can make a lot more money, even though this is a mammoth position, we're all in. Let's pursue our strategy.

It seems like they would have. I'd be surprised if they were strongly opposed to not, you know, to, you know, rejecting the bids and moving forward. And then they did it anyways, given their ownership state. So presumably this is with their blessing and they believe that they can maximize value this way. So I think we will see how that goes. I think it seems like unit was in a bit of a crossroads here where they have the upstream sale process that was ongoing. We haven't gotten to the midstream yet, but their partner on the midstream can force a sale of that asset in early 2023.

So the company was kind of looking at, depending on what bids we get here, we can kind of sit down and say, here's what we think this stream's worth, here's what we got on upstream, and then we have this rigged business that probably doesn't make sense to remain a company on its own. So we can either kind of just look at breaking this up and selling everything and here's the pile of money we have left, or we can choose to run this as an operating business. And it seems like their choice has been, you know, let's operate this business and go, you know, generate cash flow that way. And they think they can end up with a bigger pile of money in the end doing that. perfect let me ask one more question on the upstream sale process and then we can move on to me

then we'll probably move on to value in upstream and value in all the other segments but i do want to ask one more questions so as part of the sale process unCC said no we're not not going to sell upstream but they did sell one piece of the business and that was their golf coast assets and their golf coast assets you know at uh at when they were doing marketing this so january 11th they said the PV10 for these upstream assets was $69 million. 69 million. And as I talked about earlier, you know, PV10 is way, way up since then because gas prices, oil prices, everything has risen so much higher. And they ended up selling the golf assets. They said, hey, we're not selling all of upstream, but we are selling our golf assets. If I remember correctly, they sold them for $69 million,

but they also sold the Gulfstream assets with the, I keep saying golf. They sold the Gulf Coast assets with an effective sales date of April 1st. And they're going to close that July 1st. So all the cash flows from April 1 to July 1 will go to the buyer, not to the seller, right? And that is going to be a lot of cash flow because, again, gas prices were going parabolic during, from a, especially in April, April, May, a little less June, but they were way higher. So they sold them for, I think it was $64 million was the price they sold the golf assets for? No, was it $54 million? They sold them for less than PV10, and PV10 had gone up a ton.

And they sold, it's less than the headline number because there's three months of cash flow in there. So I want to, it was $56 million was the number. I'm looking at the right spot now. So I just want to ask, $56 million headline number actually less than that when you factor in the cash flow. And that's a discount to PV10 and an even bigger discount once you factor all that in. Long-winded way of saying, should we look at those golf assets and say, oh, maybe these assets aren't even close to us as a track. to everyone was thinking, you know, nobody sells us for PV10, but they probably just sold the golf assets for PV-18. Maybe these are PV-18 assets. That's a great question, and I think

that is, as you mentioned, one of the other overhangings that people are looking at and making them question what the value is here. We've gone through the sales deck, the golf assets are their highest decline assets that they had. They're also the only non-core assets when you look at where their other properties are located. The golf assets are not central. Oklahoma. They're on the southeast coast of Texas. The type of wells that they have on the Gulf are, like I said, higher decline. And they're, again, this is me as a generalist understanding them, but essentially they're a kind of well that can die at any moment, as opposed to being a more conventional slow decline well that you would run into in a lot of other drilling regions. So

they're not as attractive as an asset in terms of, you know, my personal, personal perspective on what unit is looking at here is that they want to do some more development. They mentioned it in their Q2 updated. They want to drill some more wells. But my understanding is they were not going to do it in the Gulf Coast region. Just given that it's non-core, it's not what they're focused on. And they are very high-declined wells. So the production was dropping about 30% a year there. So the present value is skewed to the now.

Like you said, there's a lot of cash flow that came out of them in the second quarter. And it won't be there going forward. But the company is getting some cash and able to deploy it towards developing their other properties and towards returning it to shareholders. And I think they knew they weren't going to be developing these properties if they kept them. So it's better to get something for them now and focus on their core operations is, again, my perspective. I would have liked to see a higher price, but I'm not sure that the property is as good as it might seem from first glance. Perfect. Perfect. That makes total sense. Just on upstream, so we've talked about the past, we've talked about the valuation here.

I do want to talk a little bit about the future. You know, gas, as you and I are speaking, $8 to $9 for 2023, it's over $5, maybe $6. You know, at those levels, there's not, I don't think there's a single natural gas field in the United States that it wouldn't be economic to drill and produce gas on, right? And especially a lot of UNTC stuff is, it's not as low cost as like an EQT or something, but it's going to be very profitable at those levels. So the most frequent question I get, and honestly, I have struggled the most with is, hey, can they increase production next year, right?

Can they increase drilling? Can they go on a drilling spree? Could we be thinking, oh, this is a company, you know, could production go up 8% next year? Could they increase production 20% over the next three? years. Like, do they have the acreage? Can they drill? Like, what are their plans for Cappax there? Yeah. So again, circling back to their sales back, they indicated there is significant opportunity to increase production from their acres. They own their own drilling rigs. So they have an opportunity to do that in-house that they see it as being a higher

return than trying to contract those out to other producers. So they have a lot of optionality there. I think the most interesting part of that optionality is that because they have this midstream asset that, again, I mentioned is looking to likely be sold next year. They can drill acres connected to that asset to help increase the value of the throughput on the midstream prior to that sales process. So I think they have a very interesting matrix there, being able to potentially use their own drilling rigs to drill their own acres to increase their own midstream assets. evaluation and kind of have a riding tide with salt boats. I am not an expert in exactly what they're going to produce out of some of these new wells. I'm looking at it as if they were

to not drill another well from here until eternity, I think I'm going to make more than my investment back here. And I see some upside from being able to produce more. But I'm not sure if they're going to be very aggressive on that front, again, given our understanding about a relatively conservative capital allocation strategy. I think, they're going to try and identify the best opportunities. Again, they mentioned in their 2-2 update that they have an inventory they want to drill. I just don't think it's going to be a particularly aggressive growth program that you might see from some other producers.

Yep, yep. And just to what you're saying, like, look, these aren't the lowest decline assets ever, but I believe the blended, especially once you take the Gulf Coast assets out, which, as you said, we're declining pretty quickly. I think the blended average of their decline is like around 10. percent for all of their assets. It may, maybe. I mean, 10 to 12.

Yeah, it was 12 percent before, it was, it was higher than that before they sold golf, but without golf, 10, 12, whatever. But, you know, that's not a crazy decline curve. That's reasonably low on the scale of things. And if you run 10 percent decline, this strip on these numbers, like you're going to make a decent bit of money. I think we might circle back to oil and gas in a second. I actually have other questions to ask in debt, but I do want to move to the other two segments,

those are key segments. They're certainly not worth as much as oil and gas, but there could be a lot of upside to either of them. So I think the place that makes the most sense to start is you just mentioned they own their own rigs, right? And they own, it's what, 17 boss rigs, which are new generation rigs. And I think they own seven or eight old generation rigs, which are kind of a little more spec. But, you know, if you're filing oil and gas right now, you know there is huge demand for equipment, right? They, a lot of equipment got mothballed, With prices, as we've said, with prices where they are, it's really economic to drill. Rates for rigs are going up really quickly.

So when you look at the last 12 months for their rigs segment, you see, what is it? I've got LTM as of Q1, so this is a little stale, but LTM as of Q1, EBITDA was 14 million. But their new rigs that they're leasing are going to be coming in at like $30,000 per day versus it was like $17,000 last year. So this is going to, you're going to see profits ramp up here really quickly. I've kind of thrown it all out there already, but I want to ask you, on the rigs, where do you see the cash flow going from rigs? Where do you see the value? And if you want to add anything to, I'm sorry, I just said the whole outlook, but if you want to add anything that, I'd love to hear it as well. No, that's a great overview.

Yeah, so I think first, if you just go look at the boss rigs as they have on their own, as you mentioned, You know, these are valuable rigs. They're pretty high spec. They're new shortly before everything really started imploding here in 2020. Those rates, you know, if you go listen to H&P's call, you know, they'll tell you that rigs like that should be doing around $30,000 a day at current contracting rates. In Q2, unit did 21,300. So right now I'm seeing, you know, almost, you know, 40 or so percent ups and

side to those rates as the year progresses, and hopefully by the beginning of 23, we'll be seeing around 30,000, you know, running through that segment. So if you do the quick math on 30,000, you know, running through rigs versus the current 21. I mean, they did about 33 million of contract drilling revenue in Q2 and so you give that another bump. You know, you'll be looking at hopefully somewhere in the 40 to 45 million range of quarterly revenue there. On the expense side, they had about $26 million in Q2. So on one hand, there's going to be inflation pressure there. But on the other hand, there's also some activation costs

because they've been getting those up and going in the first quarter, the second quarter. So I'm consciously optimistic that number is going to go up with inflation, about as much that it's going to go down due to the one-time cost dropping out. So if we end up in a place where they're doing $40 to $45 million of quarterly revenue from rigs and their costs are around 25 million, then, you know, they can be doing more than $50 million a year of rig cash flow between, you know, now and somewhere around the middle of 23.

So you said $50 million of cash flow between now and somewhere in 2023. I don't have huge quibbles with that number. I think I might be a little lower, but we're starting to split hairs and like, you know, small changes in day rates because day rates drop literally straight through to the bottom line. And so I think that's right, but let's talk like, look, 10 million shares outstanding right here, right? You just said 50 million of cash flow. We can do that math really easy. That's $5 per share of value on a $58 stock price.

But we're kind of talking about, you know, right now rigs are really in demand. We're kind of talking peak earnings level. So how do you, man, everybody can just see my back on there. How do you look at the valuation for race? Because it's something I've struggled with, right? Like what's a mid-cycle earnings number? These things are just still like mid-cycle earnings number. We're obviously going to have a great cash flow number.

What do you think? Yeah, I think that's a great question. So I think first, if you looked at the cost of going out and trying to build one of these high-spec rigs right now, we could fight over the exact number, but it's probably in a neighborhood of $30 million, give or take. If you want to get a new one right now, you'd be looking at something in that Paul Park. So if you take that time 17 boss rigs, you're going to be. looking at a new build cost here of over, you know, $400 million to try and replicate what they

currently have. Let me, let me just pause to you right there. So don't disagree with any of that math. I've heard it from them. I've heard it from others who I've talked to. Don't disagree with any that math. But you do have the issue of depreciation, right? So these, these rigs, I think the last one they built was 2018 and some of them are earlier than that if memory serves. So these have been gently used. I'm sure they're getting lots of TLC and everything. But, you know, you said that 400 million number, which, again, 10 million shares outstanding. That's $40 per share. That's massive. Combine that with the cash on the balance sheet, and you're basically getting upstream and midstream for free. But we haven't factored in that depreciation. So how would

you say these nicely used rigs would kind of compare it to that new bill cost? Yeah. And that's where I would ballpark that if they wanted to go, you know, fire sale at least tomorrow. I mean, I haven't seen much transacting on the high spec side. I don't think anyone's really trying to sell rings right now going into, like what you said, it's probably going to be a very interesting cash flow cycle. Again, if you use $15 million, you still end up getting pretty close to the remaining enterprise value they have right now after their cash. So, you know, 15 times 17 still gets you in a pretty good place. If you want to say they went and sold them for half of the new build costs, might be a little more, it might be a little less.

Which seems pretty draconian to me. just, again, I'm not an expert on the shape these things are in. I think they've kept good shape. I think they've got pretty long lives, but 50% of, to build costs seems quite traconian to me. Yeah. And if you go look at independent contract drilling, ICD is a ticker that has a pretty similar rig fleet and is being valued a couple hundred million. It's kind of tough because it's mostly an equity stub with a lot of debt. But that's an interesting one to look at if you're trying to track day rates and valuations as well. So I think there's support out there that if all you have is the Pure Play rig operation here,

that you can still come up with $200 to $300 million in value. If you just tried to sell this current operating unit, and you could argue that it's going to do $50 million plus the cash flow in the next 12 to 18 months. I have not looked at ICD, but that we'll have to throw our disclosure out 100 different times because if Bloomberg's telling me, right, it's a $50 million market cap with $100,000, $25 million of debt. So there's obviously a lot of risk that comes with that. But that does look pretty interesting because when you combine a lot of leverage with a big up cycle, the cash flow numbers can get juicy pretty quickly.

But please, I've done no work there. So everybody go do their own work. Yeah, to be clear, I do not own ITD. It's just an interesting comp. That makes total sense in the contract, Julie. Let me ask one other question. Again, we've talked about how Prescott owns a ton here. they look to but didn't sell the upstream division, you've got this drilling segment.

And you could argue, oh, there's synergies. You know, we own drills. We might drill our land. There are synergies there. But I think you could also argue, you know, you don't need to have drills and upstream under the same segment that if you want to drill, you can go find the best rate. If you want to be a driller and lease yourselves out, you should go find the best rate. Like, it just makes total sense.

So could these segments, question 1A and 1B, could these segments be split apart. And why do you think the company hasn't pursued that so far? Yeah. Well, I mean, I think that they're going to be split apart based on, you know, if you read the latest financials, 50% of the midstream segment is owned by Partners Group, which is a private equity firm. And in May of 2023, they will have the option to force the sale of that segment. Hey, David, sorry, just to be clear, I wanted to talk about drilling an upstream together. I was going to go to midstream next, but I was just saying could drilling and upstream be split apart? I mean, I think that, you know, based on the sales process they just ran, they looked at doing that

and decided it was better to keep them together is the simplest answer I'd give you. Okay, okay. Makes total sense to me. Hey, you're beating me to my next question, but they have three segments. We talked about upstream. We talked about drilling. The last segment is midstream. I'll let you, you started. I'll let you continue there. I've got some thoughts I can throw in, but I think you're probably better suited to talk to this than me anyway. Well, we'll see. Yeah, so Partners Group owns 50% interest in their superior pipeline operating segment. The ownership interest is a preferred interest.

So Partners is entitled to a 7% preferred return on their $300 million investment from 2018. They will be hitting the five-year mark on that in April. and that's the point where they have the option to force the sales process. So given that, private equity generally works with about a five-year holding period for things like this. So my expectation would be that partners, when they get that option, would then look to sell and get their investment back for their LPs. I have not talked to partners, so I don't know what their intent is, but that's what I would expect. based on kind of some industry numbers that I've seen on that, I think if that were to happen, the sales price would be pretty close to partners' preferred interest as it stands today.

Their 7% hurdle gets them to about a 350 million preferred return right now. Unit disclosed, their Q2 cash flow out of Superior was about $15 million. So, again, if you want to assume we're paying peak earnings there, they're probably not going to get a huge multiple. So $60 million on a $30050 million preferred hurdle, you need about a 6x to start getting over that valuation. So my guess would be looking at midstream, that partners probably forces a sale next year,

and that sale is somewhere in the neighborhood of their preferred return, give or take. So I don't disagree with anything you say. What I was going to add on is I think midstream is the area, as I've done more work and gotten to know the company more over the past, you know, since whenever I invested in it and started following in it, it's the area I've become most bearish on. When I first started doing this, I did the math you did. And I said, oh, well, it's midstream assets in a great environment. These tend to go for around, you know, 10 X is kind of

your rule of thumb. I think if you go back to the 2018 deal, I think these were valued at like 10 or 12 X. I can't remember exactly. But I, you know, as I've done more work and kind of seen, gotten to know the assets a little bit better to talk to some people. I think you're right. And the difference is material, right? Because if it's a 10x, this is worth $10 per share or something to UNCC. If it's a 6x, it's worth about nothing. And I've increasingly come to say, hey, maybe you'll get a couple bucks from this. But I don't think there's a lot of equity value there. Would be happy to be proven wrong. But that's where I've come out to as well. Yeah. No, I think it's an interesting call option. I think that

I mean, you can't keep in mind that that $350 million hurdle is going to go down in the next year as they continue to pay cash distributions back to Partners Group. So hopefully that number is closer to $300 million next year when they force the sale, if they force a sale. And if that were to happen, you know, it gives you a little bit more potential for upside here. But I'm not looking at this thing, assuming they're going to go sell it for $500 or $600 million and that unit's going to get a huge return. I think the incentive here is tough because I don't think, I think unit would like to go try and build this out a little bit and try and add on some more pieces if they could, but I doubt partners is going to want to take on much more risk in terms of, you know, spending some cash. I should go and try and really build a larger asset right before they go into the sales process. So I don't really expect much movement on that front. It could be wrong.

when they bought some assets to the end of the last year, what seemed like a pretty attractive multiple. But the only pushback to that, and again, I do not disagree with that, but the only pushback to that would probably be, hey,

again, this deal was done in like 2018, and I think the implied valuation was about $600 million, right, which would imply UNTC's stake is still worth $300 million. It's like, well,

the energy environment today is a lot better than 2018. Interest rates are actually probably a little lower than 2018 even after this year's run. It's like, hey, Why wouldn't these be worth at least what they were worth in 2018? I mean, if you go look at what ministry assets are trading at right now,

I've landed around a six to eight multiple being more what the market value is on those. And, you know, when you try and get into what's the actual earnings power, I mean, there's not as much upside on the midstream assets as prices go up. It's mostly fixed rates. There was some minimum usage payments that kind of ruled off at the end. of 21 going in 22 so trying to get an exact trailing 12 months multiple on what they've been earning here is a little top to nail it down so essentially I want to view it as a zero or close to it to make sure that I'm not baking in a return on that piece that ends up not

materializing I think if I get 200 million dollars out of it that'd be fantastic but I'm not expecting that cool I think we've talked we've hit each segment I think we've done a pretty nice job hitting each segment. I want to do some of the parts, and then I want to talk about likely capital allocation going forward. But before we hit either of those, I just want to ask, we talked about a lot here. Is there anything I gloss over you think we should be thinking about harder, anything we didn't even talk about that you think we should be thinking about? I think we've hit most of the main points. I think one of the interesting things will be, I didn't talk about this earlier.

When it comes to lack of awareness, the company has done essentially nothing on the investor relations front in the last year. That's what we're here for, big guy. That's what we're here for. Yeah. I mean, if you go look at their press releases in the last year, there's been three, maybe. They didn't even put one out with their first quarter earnings release. No, it was so frustrating because I think, if I remember correctly,

they bury the press release inside of the 10Q? No, they don't do that. I am misremembering. They just didn't put out a press release. But, yeah, it gets pretty frustrating where they're like, hey, cash is literally flowing from the ground into our banking. It's like, yeah, but nobody can see the press release. Nobody knows. Yeah. So I think you do have to ask kind of who the incremental buyers are on a name like this. And I think until the company gets a little bit more investor facing, there's a lot of guys who maybe they look at it, but this isn't something that they would necessarily want to go invest in with a lack of traction. As you and I both know, it's great to find a stock that less people are paying attention

to until you buy it and then you want more people to pay attention to it and they don't. Well, incremental buyer, that brings us nicely to the next question, capital allocation, right? Because this company has done a fantastic job of repurchasing shares, repurchasing shares since they emerged from bankruptcy. If I'm just looking at the press release correctly, right now they've got to, got about 10 million shares outstanding. They repurchased about 1.5 million shares since their bankruptcy. So they, you know, they started with 11.5. They repurchased 1.5 in 15 months. And that's with a pretty liquid stock. And by the way, when they were purchasing in the first half of 2021, energy prices

weren't anywhere close to where they are now, right? So they weren't generating anywhere close to a lot of cash. But capital allocation, you know, 10 million shares now. We talked about how Prescott owns a lot. There's two other holders who own a decent bit of this thing. I'm sure they would love to buy more shares, but at some point, you start to run into, hey, is the stock even liquid enough to buy more shares? So they said in their press release for July, they said, we're evaluating how to return capital. What do you think most likely? Are we talking big dividend? Are we talking tender offer? Can they continue doing share repurchases? How do you think they're going to return capital shareholders? Or am I wrong in there saying they're going to do it and they're

going to pull the classic oil and gas thing and say, oh, actually, we decided to do a lot of M&A? Yeah, I certainly don't get the impression looking at what they've been doing in the last couple of years of buybacks and very conservative capital allocation strategy that we're suddenly going to see an M&A spree. But like you said, it's oil and gas, so best to be a little bit cautious on that front. My expectation is now the company is committed to continuing to operate, they're going to manage their upstream, they're going to manage the rigs, they're going to manage the midstream for. as long as they own it. You know, they were on a national exchange before they went bankrupt. I would not be shocked to see if they tried to uplift off the thingsheets again and try and actually get a little more investor focused here.

The company hasn't publicly indicated that's the next step. I am just hopeful that that will be something they will look at here. I think it would make a lot of sense. I think that would help with them in terms of investor awareness, incremental buyers, hopefully re-rating them closer to a multiple similar to peers like Sand Ridge or other producers in their area. And I think at that point, you know, if I was Prescott, I would probably want to start being able to sell some of my steak, take some risk off the table, like you said, until it gets valued more in line with some of these other peers and to the, you know, substantial asset value that you and I are seeing here. I think they're content to buy back shares and pay a dividend. There is a bit of an interesting situation there, as we talked about, with the buyback.

They can only buy so much without the engineering the NOLs with the ownership. So I think the dividend becomes more and more of the focus, at least here in the short term. One of the other interesting upside, I guess, for the company is that they pay out dividends here. There are about 1.8 million warrants outstanding from the bankruptcy process. those warrants have a $64, give or take. It's like $63.70 strike price. And those warrants are not adjusted for dividends. So for the company, there's a kind of interesting capital allocation strategy here

where if they pay a lot of dividends, they kind of reduce the impact of those warrants on future dilution because the warrants will not be adjusted down with the dividends. Am I remembering correctly that Prescott does not own any warrants? I'm not 100% sure on that. I haven't seen any evidence that they do have warrants. I believe the warrants were granted to equity holders from the prior, prior to bankruptcy. And I believe Prescott was focused in the debt. But I'm not 100% sure on that. So I will just remind everyone, look, we've talked about how UNCC, e-liquid stock, pink sheets is risky. Warrants are, you know, you take an e-liquid pink sheet, sizak, and because you're warrants, you're basically just getting leverage on it. right, leverage to the upside and leverage to the downside. And David identified the one key thing that I look through the warrants stocks. I use so in warrants. I do not anymore because I'm with David. I think there's an increasing likelihood of a dividend return of capital. And if a dividend

is the return of capital, the warrants are, to my knowledge, my knowledge is the warrant docs. The warrants are not going to get that returned. So I just looked and said, hey, like, I love the risk reward of the stock. I think the warrants are probably a fine risk word. But if I love the risk forward of the stock. Why miss it? Why miss it because of a dividend or something if I'm in the warrant? So again, everybody should do their own advice. I think David laid that out really well. I just wanted to lay out a little of my own thinking to if somebody hears this and here's the some of the parts I think we're going to throw out and says, oh, warrants, let's get that levered upside. There's real risk on top of all the risk we've already talked about. So I just wanted

to disclose that. I want to talk some of the parts a second, but you started mentioning the NOLs, the taxes and everything. There was a line that I have thought a lot about in that July press release, that pre-announced result, said, hey, we've been buying back some shares. We're thinking about more shareholder returns, all that. And the line was this. Given the company's growing cash balance, the company is currently updating its calculation of tax earnings and profits. This will be important information, which can be used by the board in implementing any future plans for return of cash via dividends and distributions in a tax-efficient manner. And I think you started to touch on that with NOLs, but because that line is so interesting and so

unique. I don't think I've ever seen that in a press release before. Just wanted to ask you about that line in particular. Sure. Yeah. So I think, you know, depending on how they choose to do a dividend, whether it's a special or they sort of, you know, implement a regular recurring dividend, you know, you may be aware, well, you are aware that depending on whether a dividend is, you know, distribution from earnings or return of capital, there can be somewhat different tax treatment, both for holders of the stock and for the company. So we're going to, you know, I am not a tax expert on that front. So I will, again, defer that one to readers at home can look at that and understand the

differences between return of capital and how that might impact their, their holdings and where they're holding them a tax advantage or not taxed advantage account. But, yeah, my understanding is that, you know, essentially getting to the end of the issue is, I think they're going to be paying dividends next as the primary focus to return of capital. The company has not told me that I'm not, I'm just speculating based on the NOLs and what you said, the unique wording in that press release. A hundred percent agree. A hundred percent agree with you.

And the nice thing, and this brings the source of the parts, the nice thing is that dividend could be pretty big. For the sum of the parts, there's four numbers you need. You need their current cash balance. You need to put an valuation on upstream, evaluation on the drilling rig segment, and the valuation on the midstream. And I'll go first just because it's really simple. The company disclosed Q2 cash balance is 115. They're going to get, you have to adjust for the golf sale for the cash flow from April to June that we talked about. But they'll get at least $30 million

from selling golf is, I think it's going to be a little higher than that, but let's call it 30 million. Go ahead. I think the press really said 43.7. It's 43.7, but then I think they have to adjust for, I think they have to adjust for the Q2 cash. Am I misremembering that? Okay. I thought I was worried that was the adjustment from the Q2 earnings. I could be wrong. Well, that would be even better. So let's use your 44 number. It's not going to make a huge difference. Again, about 10 million shares outstanding. So people can knock a dollar 40 per share off the numbers if they want to pretty quickly. If we use that 44 number, corporate cash is, let's call it $160 million to make the math really nice and easy.

That's $16 per share. So we've got our corporate cash number settled. That's an accounting metric. I think we can all have grants $16 per share. So that's my number I'm going to give to you. You've got to do the other three numbers, though. Let's talk upstream. What do you think upstream is worth?

Ballpark, I'm still thinking that it's around a billion dollars here. They didn't sell it for that. they said in January, that's what they wanted. I would guess with where the strip moved but what they wanted also moved. I don't know for sure where exactly that would land today, but my PV10 number back to the envelope right now is around a billion dollars.

So they went and sold that for around PV10 if the pricing supports it. I think it's around a billion dollars here. So to the extent anybody cares about my thoughts here. I think my PV 10 number would be slightly higher. Oh, actually, because I'm not addressing for golf, it would probably be a little bit higher than a billion, but I've generally valued everything just in my personal modeling at 80% of PV10. I don't think it's worth super splitting hairs over. People can do that or not if they want, but you know, if you use the

billion dollars and it's $100 per share, right? If you use the $800 million, it's $80 per share. So again, we're talking to stock trading under 60. I just, wanted to throw that out there so people could hear, because this is one of the ones I actually am really interested in people could hear my thought. So we've got your upstream number. Let's go and talk about Rids. RIGs. Yes. So if they were to go sell the Riggs for asset value tomorrow, I mentioned earlier, I think they would get at least $200 million, probably $300 million for that segment. So $30 a share, $20 a share, pick your number. I think there's a chance they could still get that in a year and cash flow more than $50 million from them in the meantime.

So we can use a placeholder and say $25 a share if you think that, you know, if you start reading the commentary from some of these oil field service operators that are saying they're sold out for 23 already on their rigs, I think that unit might be able to do upside to that number depending on, again, the pricing environment. We know this whole industry is drill-div-drill, even when they try to. really hard not to. So, yeah, I would say ballpark, 25. Absolutely no disagreement there. And I think you're, I'm with you. I think the valuation is around $250 million or $25 per share. And I'm also with you where I think that's the valuation

kind of one year from now. And we kind of get one years of like super normal profits in the meantime, which probably adds another $40, 50 million of cash flow to the business. But not worth super splitting hairs over. So we've now got three segments done. We've got upstream, which we said was worth about a billion, $100 per share. We've got rigs worth about $250, about $25 per share. And we've got the cash accounting value about $15 per share. Last one. And we could probably do this pretty quickly, but midstream, do you throw any value attached to midstream? We'll assume it's a zero. Again, I think if the, you know, if the sale process goes through, they sell for 400 million unit might end up getting close to 100 million

out of that. It could be $5, you know, $50 million, you know, $5 or $10 a share. But my expectation is there's not a ton of upside on this number unless pricing really truly does explode between now and next summer and companies get more comfortable paying a higher multiple on earnings. Perfect. Perfect. That makes total sense.

So when we just did our math, you know, again, upstream, a billion. $250, $1.60, net it all out. You've got some of the parts that comes out to about $140 per share. Am I thinking about that right, doing that math right correctly? Yep. Yep. Look, I'm totally with you. It's one of the things I've written several times about how all energy looks quite cheap to me. But one of the things I love about unit is I think you get the best of all worlds. They're returning capital to shareholders. There's no debt. So you're not looking at something where, oh, if prices go down, we're in ruins, but if prices stay here, we make a fortune.

Like prices goes down, yeah, we're sad, but because there's no debt and so much of the balance sheet is in cash, you've got a lot of protection there. You've got extra protection from the hedges, which I'm really encouraged that they started putting hedges on at higher levels. And then you've got the rigs, which will really benefit if prices keep going parabolic and there's huge demand to drill. So I don't know. Anything else you want to talk about there, or do you think we've covered it all?

Well, I think that the one thing you mentioned that does add some convexity here is the buybacks. You know, they bought back almost 3% of the outstanding shares between when they terminated the process in June and when they put out their press release last week announcing their Q2 preliminary results. To the extent they're able to continue utilizing that and cutting down the outstanding shares, you start doing the similar math to what you just mentioned on a lower share count and things get pretty interesting. And it is worth noting, as we said earlier, with the warrants there, that, you know, if we're kind of doing this, like, a $150 share ballpark over $10 million shares. And, yeah, there's a warrant. So the warrants make it about $12 million right now.

I'll be curious to see, you know, if they do a lot of the returns via dividends, like we said, then the warrants will share less than that upside. So it's kind of hard to, you kind of have to game theory, how much is going to be buyback, how much is going to be dividends, how much is going to be. just getting a multiple on the stock that looks more like other peers. It's a great point. When I was doing that quickly, I did not adjust for the warrants. Actually, when we originally started buying this, we didn't even know where the warrants were going to get struck, if you remember that, because they didn't announce it and settle it until late June, I think.

And then there was like, the warrants went publicly traded one day. And I wish I had seen it. The first couple thousand traded for like a penny, which was way too cheap. Because I think now they're trading for $12. or something. But yeah, we didn't even know. But look, if unit is worth $1,000 per share, yes, the warrants are really going to matter. If it's worth 140, the warrants are going to matter. But the warrants are struck at 65, which is above today's price. So, you know, cash comes in. It's not like just the straight dilution to 12. But just wanted to point out of that.

Let's see, anything else on unit we should be talking about? I mean, I think we've covered the main thing. I feel like you get, you know, as you said, the best of both worlds here where, you know, as long as companies continue spending on growth and, you know, they need their rigs, they're going to fill up their midstream assets with product. Their upstream is going to continue to produce. They seem to be committed to hedging it to kind of lock in pretty predictable cash flows on that side. So even if pricing collapses, they're not going to be as sensitive to it here. They've got a huge cash balance. They've got, you know, they're shown a two-year track record of returning cash and shareholders since they

came out of bankruptcy process. So I think that makes it a stock that really does appeal to the generalist investor that's touring through energy right now, which could be a blessing or a curse depending on where pricing goes from here. I feel seen by that. I want to ask you one more question about that in a second, but let me ask a random question. Have you read, so Unique was publicly traded for a long time. They went bankrupt in 2020 and they emerged in 2021. Have you read their pre-COVID pre-bankruptcy filing hearings at all, transcripts at all? No, I have not. Okay. It's really not necessary, but it is funny. So like the last conference they did in 2019, the first quote they come out is they say, oh, hey, we're unit corp. We got our start

dates back to 1963. We've been here for a very long time. We've seen. tons of up and down cycles and we've been able to navigate them all and you know six months later they're filing for bankruptcy which it just every time i think about unit i think about that quote and it really tipples me uh i did have a non unit question i wanted to ask before we wrap this up you've been super generous to your time i know we're going over but uh look again i follow i started following you because you wrote about unit that's how i think i discovered you we've swapped thoughts on several energy names and stuff going recently i might ask you about wCI in a second second. But I was struck. You're a newer firm. You're just coming up, a lot of your book and a lot of your focus on energy. So I just want to ask, are you, do you consider yourself an energy specialist at this point? Or is it just, hey, we are a generalist, but we are just seeing like with where energy prices are, where the world is right now, there's so much value in energy. That's just where we want to park. That's where we want to put our place our best. Does that make sense?

Yeah. No, it's very much the latter here. So I did not go into this. this year expecting to be quite as heavily concentrated energy as we've gotten. Just looking at the near-term opportunities of cash flow, you definitely have concerns around where we're going as an economy in terms of, you know, are we in a recession or going into a recession? What's that going to do to energy demand? We've been focused more on the power generation side as opposed to the oil side. So, I think unit is kind of the only really heavy, not the only. It's one of the only heavy, more oil focused names that I'm invested in. I've got some interesting stuff I've been looking at in coal and natural gas, but I have been fading oil a little

bit more due to the recession risk there and being a little bit more sensitive. So yeah, I'm not a traditional energy investor. I am a generalist in the space. So I, as you said, feeling seen earlier, that comment was as much about myself as anything. but look i i i kind of agree with everything you just said in there like for me i i think lots of stuff and energy are is really interesting i i personally lean towards nat gas heavier things unit obviously being one exception but i lean more towards nat gas heavy things just because coal i i do know how cheap people ask me all the time do you know how cheap pull this i'm like yes i can i can put an excel model together i can see ltm numbers versus eb thank you very much but

I know how cheap it is, but NACS, I just think, hey, yeah, you pay up a little bit for it, but I just feel a lot more comfortable with the terminal value, sometimes even the management teams and everything there. But, you know, it's just, I was tweeting yesterday, refiners, right? Just to choose a completely different energy-related sector. PBF printed $10 per share in EPS for Q2. It might have been higher. It might have been 12 after you adjusts for some tax things.

Their stock is at 30. Like, this is three times one-quarter's earnings. I know Cole, you find a lot of that, and it's like, yes, I get the cyclicality. Yes, I get the terminal value risk. But like, when you're at three times one quarters earnings, there's a lot that can go wrong. And, you know, it doesn't take much to juice your whole, to print your whole market cap in three quarters at that point. So, yeah, anything else you want to say about being a generalist looking at kind of energy and more commodity-focused things? yeah no i think um i think just in general it's it's important to try and as you were saying

trying to understand like what you're you know anyone can put these numbers in a model and figure out that they're cheap so we try to go in with the assumption that a stock isn't mispriced rather than going in with the assumption that you know anyone can do the math that i've done on unit today um so i don't i don't necessarily look at that and think um you know i'm the only person that's figured this out. And clearly, we found each other partially because of unit. So, you know, that's a great example of generalists finding each other over energy stock. And, you know, it does lead one to pause and think, all right, what are the ways that I get hurt here? What, you know, if energy prices collapse, what am I looking at? And that's

one of the reasons why I get comfortable with names like Unit, where I know they have headies in place. And I know there's, you know, substantial asset value here underlying the stock price where, you know, some of the other names that have been popular. I keep using standards as an example, but I think I did a Twitter thread on it a month or two ago. If you go to go look at the evaluation of their upstream versus unit, it makes the unit look very valuable. And so that's another generalist name that's been popular.

Which name was that? Sorry, you cut out for one second when you said the name. Which name were you compared to unit? Sandridge. Sandridge, yeah. Okay, yeah, yep. Yeah. Yeah, I think you just go look at those.

You understand, you know, I think sometimes with these names, you can come up with a pair trade that makes sense if you're willing to sit in it for a little while and wait until some of the assets converge to their valuation. So we are longer term oriented, and we look at this as an opportunity that, you know, we see a lot of these assets is, you know, not having fully realized their potential yet and trading in a multiple that we find too good to pass up, even if, like you said, you beat it up for some pretty significant regression to the mean. Makes total sense to me.

Well, I had a question on WTI, but I think this podcast run long enough, and we don't need to get into another super complex, super levered offshore story that time now. So we'll just have to save that for the next podcast. But Dave Bastian, people can find his work, Kingdom Capital on Twitter. I'll include a link to the UNCC piece he wrote in the show, notes so people can go find that. People should give them a follow on seeking out and everything. But David, thank you so much for coming on. I'm looking forward to the next one.

Thanks, Andy. I really appreciate it.