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Constellation Energy Partners, Ltd. Şti. Message Board

  • watsyouthink watsyouthink Aug 12, 2010 11:50 AM Flag

    Dividend To Be Reinstated Next Quater?

    Looks like it.

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    • Here is an idea for PSTR:
      1. Since diluting existing shareholders is not going to contribute
      enough for a meaningfull reduction of debt, maybe a preffered
      with some convertible preffered on top will give the management
      something to deal with with the banks.
      2. When having different types of assets as collateral one should not
      try to make one loan. that is not a good idea.
      Each class of assets has its own good and bad and should service
      3. The pipelines right now are not doing well. The company needs to
      give shareholders updates on what is happening with those assets on
      a monthly basis. These are the assets that are the real problem for
      the company right now.

    • I understand but disagree. PostRock and Constellation are both floundering E&P's. PostRock has less debt per flowing MCF than Constellation, so I would think it would have a better chance of surviving that CEP would, at least in theory. Management at CEP seems a bit better than at PSTR. Both companies seem to be in coastdown mode, i.e. letting production drop due to not wanting or being able to invest sufficient capital into the business to keep production flat.

      PostRock does indeed need to reduce their borrowing costs, and, I believe their debt load has been reduced down to around $300 million. A 2% cut on their borrowing rate would add tremendously to the bottom line.

      It is almost always impossible for these microcap E&P's to survive. The cost of being a public company is so high and ultimately, they end up lingering along, piecemealing themselves off to stay afloat. Combined, PostRock and Constellation would still have less than a 100 million market cap.

      Collectively, they would have close to 100,000 mcf/d of production, enough to help keep the pipelines full.

    • That is part of PSTR. I have a feeling that a lot of their debt
      problems are due to midstream having too much debt and it is hard to
      roll it forward now. I would think that if the businesses were
      looked at separately than they would have to do a deal for the
      midstream for a 15-20 years of amortization and the rest (being for
      the exploration & production) would be a typical 5-7 years with a
      certain baloon. from what I know, mixing long live assets with
      exploration & production is a bad idea due to lenders not
      understanding what they loan against and getting into panic mode at
      the wrong moments (I know these financial institutions deal with
      huge amounts, but in many cases they do not realize exactly what they
      are lending against and that can hurt the loan taker big time).
      I have a small position at PSTR and I suspect they will survive to see
      another day, but in the meantime they will be a fee machine for the
      banks - $29M intrest on $329M debt is close to 9% and the banks will
      take more for a refinance (they do not bother with the fact they are
      killing their collateral - their bonuses are based on fees and credit
      groups love those bonuses).
      Anyway, good luck to us with PSTR.

    • Actually PSTR has less debt per flowing MCF than CEP. PSTR has around 1.5x the production that CEP does, plus they have the midstream assets, which allow them some advantage in gathering and delivering that gas to production.

    • I don't understand why anyone would want to combine with PSTR.
      PSTR has too much debt and their midsteam assets are the main culprit.
      CEP just needs to invest enough to maintain production. why increase
      it while prics are low? By maintaining production within 3 years they
      will have paid back ovr 50% of their debt and if they can hedge
      forward at profitable prices, they should do so.
      I never said anything about not investing anything in capex. I just
      said one needs to optimize its capex and look at cost of money and
      if it puts the entire business at risk.

    • A good dialogue here, which is somewhat unusual!

      I agree, with gas prices in the low 4's (and likely even lower for the Cherokee basin due to basis differentials), it makes sense for CEP to let production drop to levels that essentially has them producing just enough to satisfy hedged amounts. They are in essence, letting the flywheel coast down due to normal decline. This on the surface seems prudent, but one can't forget that production is the source of cash flow! It is dang hard for a company to grow production, especially a company with high cost unconventional assets like CEP's coal bed methane acreage in the Cherokee and Black Warrior Basins. So, this is only a prudent strategy as long as the bulk of the production is hedged. I agree with some that pricing is bound to increase in a few years, but I don't think $6.00/mcf is sustainable. Lots of producers are indeed drilling to lock up acreage. Once that dies down, pricing may creep up to $5.00/mcf, but at $5.00 that still makes many of the dry gas shale plays attractive, let alone the ones with liquids production.

      Again, as I said before, it is incredibly hard to grow production, especially when you are staying within cash flow. It is even harder for a company like CEP which has a high debt load and poor drilling economics. Reduction in debt is almost as important as keeping production flat. CEP is playing russian roulette with gas prices. They are hoping they can keep making debt payments and also have something left to put back into the business to either reduce the decline, or hopefully grow it at a modest rate. Once the hedges run out, the company will be at the mercy of the basis differentials and the prevailing commodity prices and to some extent the mercy of the lenders.

      As I say often, CEP needs to merge with PSTR. They could then focus on recompletions, which seem to have an even higher IRR than new wells.

      I don't own any CEP or PSTR but I watch them closely because they are cheap on an EV/flowing mcf basis.

    • I would agree that thier is nothing economic about drilling for gas at spot prices but to maintain production at hedged prices makes cents!!!

    • Their production is going to go down to beyond the hedged level.
      Why spend good money today just to produce unhedged ng when
      prices are so low? you have a certain amount in the ground
      and you want to optimize its timing on the market.
      They will invest only the minimal required capex to produce
      enough to sell at higher price and some more to reduce debt.
      No more should be done while prices are low.

    • Yes they can reduce debt but that is because they are spending near zero on capx growth thus they are eating themselfs alive in order to reduce debt at a very nominal rate!!!!

    • We are not talking about higher cash flow than when the stock was
      much higher. There is a reason why the stock went down. I am talking
      about almost the only thing which determines if you stay in business:
      can you pay your debt. as the debt goes down the intrest goes down
      and you can refinance to reduce you rate.
      Everything starts from that.
      Right now, the company with its hedges can reduce debt even at these
      low ng prices and that is more than many other companies can say.
      Companies who are profitable can go under due to inability to role
      debt over. so far, this is not an issue here.
      I am far from being a cheerleader and I am not looking for dividends
      in the short run. I am looking for this cheap asset to reduce debts
      and through that survive to see better days. That is the full
      picture and I am keeping my focus on that.

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