The market is implying that we will get 3-4 years of dividends, and that will be it. Present value 4 years of $2 dividends at 10%, and you get about $6 and change.
If oil and NG stay were they are, and the hedges mature, I don't think there will be much excess cashflow (if any) for distributions after maintenance capex, interest, and loan principal payments. I am not sure how well these structures do when the banks start wanting their money back. That is a legitimate market concern.
My feeling is that the commodity prices will recover once global growth picks up again. That may be a couple years down the road, and the stock may mark time until then. Even then, the dividend will probably be cut unless we get over $70-80 again.
What we need to see is a drop in drilling and exploration projects industry wide, and I think that is already occuring. Management needs to hunker down, and cut costs as much as possible.
From what you are saying if oil prices don't go up in the next 3 or 4 years just about every oil company in the world will be BK except the mideast and if one live in a northern climate they will freeze to death because all the oil co.'s are bk...Somehow i think it won't come to that
I am not sure if you are arguing that oil prices will go up or not?
I did not say I think the company would be bankrupt. I just said at current commodity prices (and no hedges), there will not be much excess cashflow to pay distributions. That is basic math given their cost structure and debt structure. Maybe they can change the cost structure dramatically, but I am not sure how much.
I believe I said commodity prices will pick up when the world economies recover. I don't know if that is next month or 2 years from now. I suspect we will start seeing growth by the end of next year.