• Subscribe
  • Log In
  • Home
  • Daily Diary
  • Asset Class
    • U.S. Equity
    • Fixed Income
    • Global Equity
    • Commodities
    • Currencies
  • Sector
    • Basic Materials
    • Consumer Discretionary
    • Consumer Staples
    • Energy
    • Financial Services
    • Healthcare
    • Industrials
    • Real Estate
    • Technology
    • Telecom Services
    • Transportation
    • Utilities
  • Latest
    • Articles
    • Video
    • Columnist Conversations
    • Best Ideas
    • Stock of the Day
  • Street Notes
  • Authors
    • Bruce Kamich
    • Doug Kass
    • Jim "Rev Shark" DePorre
    • Helene Meisler
    • Jonathan Heller
    • - See All -
  • Options
  • RMPIA
  • Switch Product
    • Action Alerts PLUS
    • Quant Ratings
    • Real Money
    • Real Money Pro
    • Retirement
    • Stocks Under $10
    • TheStreet
    • Top Stocks
    • Trifecta Stocks
  1. Home
  2. / Investing
  3. / Energy

From Idea to Execution

Why Arabella Exploration is a star performer in my portfolio.
By JIM COLLINS
Sep 04, 2014 | 05:00 PM EDT
Stocks quotes in this article: AXPLF

Arabella Exploration (AXPLF) has been the shining star of my "Mad Money" portfolio. The warrants (AXLWF) that I own for that model portfolio and for my clients have more than doubled since the portfolio's inception in mid-January and more than that for most of my holders as I was buying the warrants aggressively around Christmas, ahead of Arabella's transition from a Special-purpose acquisition company (SPAC) to a public company.

Emerging companies, especially in energy, tend to grow in stages. This summer Arabella transitioned from the "idea" stage to the "execution" stage as the company's Emily Bell #1H well showed a high initial production rate (more than 1,100 barrels of oil equivalent per day), and, even more importantly, a solid 30-day production average rate of 482 boepd.

But with 10 wells (nine new-drills and one re-entry) remaining to be drilled under the company's current business plan, the question was always, how will the company finance the drilling? I've been asking that question of CEO Jason Hoisager and Director Bill Heyn for nearly a year. During our private meeting at EnerCom in Denver two weeks ago, their answer was, "We need to go to the airport." When a management team rushes out of a meeting, you know something is up. I was hoping it was something big, and they nailed it.

Today Arabella announced a $45 million secured note facility. The details: $16 million up front, $5 million in the next 60 days and the rest is available as drilling performance hurdles are reached through Sept. 2, 2015. It's not cheap money -- nor would one expect it to be for such an early stage driller -- but the notes bear a 15% coupon (warrants were attached, as well) and mature one year from sale.

So, the drilling plan is financed and Arabella can go on exploiting its Southern Delaware acreage in Texas' Reeves and Ward counties. Arabella's much larger neighbor Concho Resources (CXO) has been absolutely killing it in its Southern Delaware basin acreage, which has offered validation for Arabella's drilling plan. CXO is running six rigs in the Southern Delaware and recent well results have been stellar. CXO's eight most recent Southern Delaware wells have averaged a 30-day initial production rate of 1,093 boepd with an 85% concentration of oil. Concho is focusing on the same two formations -- the Wolfcamp and Bone Spring, or, collectively, the "Wolfbone" -- as Arabella. It's an abundant play, and the oiliness of the production is going to drive extremely high internal rates of return for Concho, and, by association, Arabella.

In my March 14 column, I derived a fair value for Arabella of $14 per share. That was predicated on Arabella's goal of having net production of 2,000 boepd by year's end -- a target that has been pushed into early 2015 due to the later-than-expected closing of the financing. But the financing is also much larger than I had expected, and that will carry Arabella through the next 12 months of drilling by my calculations.

So, if you want to knock off a dollar from my price target on Arabella due to timing issues, that's fine. A move to $13 would still represent 79% upside from the current price. "Current" is italicized because the quote that you see for AXPLF actually represents Tuesday's closing price. Yes, on the day that the company announced the biggest single piece of news since the consummation of the merger, not a single share of Arabella has changed hands.

That's the final hurdle, getting some liquidity in the stock. Heyn has been working diligently with the SEC to get Arabella registered as a bona fide U.S. company, and I believe that will happen soon. That doesn't imply a flood of liquidity on day one, but investors' desire for 4P (Pure-Play, Public Permian) companies is such that I believe liquidity will be created. Warrants will be converted to common, although based on my price target, you can probably guess that I won't be cashing my or my clients' in any time soon, and AXPLF's ridiculously small float of 750,000 shares will be increased.

Also, Arabella can call the warrants if the common trades above $10.50 for 20 of 30 trading days, and it is certainly no coincidence that it was at that price that Hoisager invested $2 million of his own money in AXPLF on June 27. He told me in Denver that he believes AXPLF is worth 50% more than that price, and I hope he's proven right.

(Please note that due to factors including low market capitalization and/or insufficient public float, we consider AXPLF to be a small-cap stock. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.)

Get an email alert each time I write an article for Real Money. Click the "+Follow" next to my byline to this article.

At the time of publication, Collins was long AXPLF warrants, although positions may change at any time.

TAGS: Investing | U.S. Equity | Energy

More from Energy

Let's Look Under the 'Shell' of This ESG-Style Fund

Mark Abssy
Jun 28, 2022 2:00 PM EDT

One of the Nuveen Global Net-Zero Transition exchange-traded fund's largest holdings is Shell, so let's drill down on this supposedly environmentally friendly ETF.

The Fed Blinked and So Did We

Peter Tchir
Jun 27, 2022 9:30 AM EDT

Here's what we need to get a bigger rally.

See That Down the Road? It's the Big 'Green' Bubble, Ready to Pop

Jim Collins
Jun 24, 2022 1:30 PM EDT

Environmental, social, and corporate governance has created a monster and gullible investors should hit the brakes on their EVs and run from the Washington technocrats while they have the chance.

Weber's Rally Was Cooked Up By the Shorts and Something I Experienced First Hand

Jonathan Heller
Jun 24, 2022 10:00 AM EDT

It should be an interesting ride from here.

Will This Year's Energy and Commodity Trades Become Last Year's Tumbling Tech?

Helene Meisler
Jun 24, 2022 6:00 AM EDT

I can't remember the last time anyone asked me about Apple. No one cares.

Real Money's message boards are strictly for the open exchange of investment ideas among registered users. Any discussions or subjects off that topic or that do not promote this goal will be removed at the discretion of the site's moderators. Abusive, insensitive or threatening comments will not be tolerated and will be deleted. Thank you for your cooperation. If you have questions, please contact us here.

Email

CANCEL
SUBMIT

Email sent

Thank you, your email to has been sent successfully.

DONE

Oops!

We're sorry. There was a problem trying to send your email to .
Please contact customer support to let us know.

DONE

Please Join or Log In to Email Our Authors.

Email Real Money's Wall Street Pros for further analysis and insight

Already a Subscriber? Login

Columnist Conversation

  • 11:56 AM EDT STEPHEN GUILFOYLE

    Stocks Under $10

    Check out what's going on in the Stocks Under $10 ...
  • 12:04 AM EDT PAUL PRICE

    Two Good Signs -- Especially for Small-Cap Investors

  • 12:10 AM EDT PAUL PRICE

    More Insider Buying in American Woodmark (AMWD)

    American Woodmark , which I've discussed here fr...
  • See More

COLUMNIST TWEETS

  • A Twitter List by realmoney
About Privacy Terms of Use

© 1996-2022 TheStreet, Inc., 225 Liberty Street, 27th Floor, New York, NY 10281

Need Help? Contact Customer Service

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data & Company fundamental data provided by FactSet. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by FactSet Digital Solutions Group.

TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

FactSet calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.

Compare Brokers

Please Join or Log In to manage and receive alerts.

Follow Real Money's Wall Street Pros to receive real-time investing alerts

Already a Subscriber? Login