Another HWO.to Quick Update
Quick update after Q 2024
*Disclosure: I own shares in HWO. I am not a professional. Please do your own due diligence.
Price: $1.38
Performance since announcement that they want to return capital to shareholders and split the business (May 11, 2023): +30% (plus some dividends).
HWO reported last night and held a call today. The market liked it and the shares ended up 4.6%.
This really wasn’t a material quarter, but it did give us some more data points on the potential value for the business post split.
Quarter Recap
Rig 103 was fully utilized during the quarter and gave PNG a nice bump.
It is now sitting idle. The contract for rig 103 goes to 2025, but there is no drilling scheduled.
Total is planning on making a decision on PNG sometime in 2025.
This was the first full quarter of Delta and they said it’s performing as expected.
Team Snubbing had a good quarter as well. They recognized 0.5 million in equity income from Team Snubbing.
Call Notes
The rollback is intended to have the shares not trade at a very low price.
Currently each entity would theoretically trade at about $0.70 total. So the rollback would have them trading at $2.80 total. This may allow more institutions to purchase shares. Many institutions have a mandate that they can’t buy “penny’ stocks.
G&A running higher than it normally would. This as too be expected as the arrangement, meeting and Delta integration all happening simultaneously.
HWO would continue to list on TSX. SpinCo to list on the venture.
There was some discussion on the tax assets. Nothing new was discussed.
They went into the rationale for the director nominations for each of the new businesses. It seemed to be reasonable to me.
There was not a bunch of questions like the prior calls. I assume this means that everyone understands the arrangement well.
Valuation
I tweaked my total value for the distribution and two companies. I get $1.55 at the very low end and $2.00 at the high end. This assumes pretty lackluster activity in PNG. Of course if there is news that Total will continue to invest in PNG and North American activity levels remain stable or grow than I think the upside could be closer to $3. The other kicker could be some sort of merger in North America to utilize the tax assets.
Closing Thoughts
I continue to hold my shares here. I think the downside is limited (though I’ve been saying that the whole time). I’m assuming the plan goes through. This whole thing should be wrapped up by the end of the year.
Thanks for reading.
Dean
* long HWO.to