Energy Clues Heard at LDMicro

 | Dec 06, 2013 | 2:15 PM EST  | Comments
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I just finished the LDMicro conference in Los Angeles and Chris Lahiji and team did a phenomenal job of bringing smaller companies to the investing public. It would not be possible for me to hear the word "disruptive" more times in a three-day span, but, buzzwords aside, there were some great ideas floating around Brentwood during the conference.

I'll focus today on Portfolio Guru's LLC favorites, GreenHunter Resources (GRH) and Miller Energy Resources (MILL). I'll publish a broader "state of micro-cap" column this weekend.

GreenHunter continues to finalize details on its $35 million second-lien financing. I believe that capital will be the rocket fuel that propels GreenHunter from about $40 million in revenues this year to an $80 million run rate by the end of next year (my estimate; management has not issued 2014 guidance).

Greenhunter's interim CEO Jonathan Hoopes presented to a packed house, and the small-cap investors at the conference were intrigued by the company's core Salt Water Disposal well business. The creation of briny wastewater during the fracking process is widely understood, and GRH's plan to double SWD capacity by mid-next-year continues to intrigue.

Hoopes noted the company has six indications of interest for its MAG-Tank product. As the customer base for MAG-Tank grows beyond GRH's corporate cousin Magnum Hunter Resources, the profitability of these modular tanks will become apparent in the company's earnings. CEO Hoopes touted earnings before interest, taxes depreciation and amortization margins on the MAG-Tank of 50%,

I also noted that the question and answer session focused mainly on GRH's Series C Preferred. GRH has reached its full authorization on the Series C, but this type of investor is very knowledgeable about "Life Beyond Common Equity". While I believe the common is undervalued, the Series C's 13% yield, 20% discount to face value and call protection until July 2015 make it irresistible.

At the end of the day, however, if there is a disruptive strategy, it is GRH's plan to barge wastewater down the Ohio River to its Ohio-based SWD wells. The increase in truck traffic in Appalachia has been a consistent complaint of locals, who certainly enjoy the job creation of hydraulic fracturing. GRH has three locations that will serves as barging terminals with several more prospects, and I look for actual transport to begin in the first quarter of 2014.

Miller's presentation was nonexistent. Management chose, on the advice of counsel I was told, to hold off on presenting until fiscal second quarter results are released. The buzz at the conference was that that release will occur next Tuesday.

So, there's no smoking gun here, just a sense of anticipation: MILL's conference call will be massively important. This story is really playing as I had hoped, and MILL's shares can and do move dramatically based on results from any one well.

I am not an active trader in my core income strategy, but for those of you who are, MILL's call next week will be a tradable event.

My hunch: you want to be long into this one. Miller recently reported strong initial production from its Sword #1 well. That justified management's thesis that the "onshore from offshore" drilling strategy will be fruitful on the west side of the Cook Inlet. This will also be management's first chance to talk about the recently acquired North Fork Unit on the east side of the Inlet.

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