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Warren Resources, Inc. Message Board

  • jj_js_007 jj_js_007 Feb 24, 2009 5:26 PM Flag

    Q4 Earning estimates and why the stock is down

    Run some number and based on today's production volume numbers and based on $58 and $5 (oil and gas prices, I'm expecting breakeven with +- $0.01.

    The problem with WRES is two fold:
    1. Negative free cash flow if oil stays below $55
    2. Reduction on proved reserves (really, they need to explain this better as they are side-stepping this question)

    Any comment is welcome

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    • Nice post, very informative.

    • Are the low oil and gas prices going to put them in violation of their loan covenants?

      • 1 Reply to jbcguy
      • The only convenant that they are in danger of violating is the EBITDAX/interest expense = 2.5 to 1.0. Thus, if they have negative return for a sustained period, they will be in trouble. However, this measure is for annualized. Thus, they are in no real danger until the end of this year.

        I have also confirmed my reasoning for the markdown in proven reserves. It is based on "recoverable" economically produce the oil. As the year-end 2008 oil price was $32.92, a big chunk of the reserves are not "recoverable" now (but could be again in the future).

        Also, I think with the price of oil down in Jan and Feb this year, the Q1'09 will be horrible as there is oil hedge (only a small portion of natural gas is hedged). But for Q2-Q4' 09, there is a hedge of about $50 or almost their breakeven point.

        This is the stock where their cumulative losing years 2003-2005 of $16.9M is more than covered by their winning years of $59M from 2006 to 2008. The great uncertainty is 2009-2010 as they have a hedge of $61.8 for half their volume in 2011.

        This company is not going BK as they have sufficient revolving credit
        If you think the price of oil will be higher than $60 in the future, this is a good bet

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