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Constellation Energy Partners LLC Message Board

  • pvxbasher pvxbasher Nov 10, 2010 9:05 AM Flag

    Now that NAV has been ajusted

    to half of it's former value who thinks that the CEP borrowing base will not be reduced by a wide margin SOON?

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    • yuo read the news today after hours, moron?? Nice analysis idiot, the base stays at $195 million. 'Nuff said.

      • 2 Replies to skiselev81
      • Well, from what I saw, the borrowing base declined from $205 million to $195 million.

        If you look at the last press release (3rd Q earnings), they note that they included a Liquidity update:

        "The company had a cash balance of $13.2 million as of September 30, 2010. Outstanding debt under the company’s credit facility currently totals $171.5 million, leaving the company with $33.5 million in available borrowing capacity at the company’s current borrowing base of $205 million."

        I am actually surprised it only declined to $195 million. I figured the banks would tighten the noose and go down to around $180-$185 or lower.

        CEP has gained some breathing room until the next review (6 months from now). They will, unfortunately, be forced to put most of their cash flow into debt reduction to stay ahead of the borrowing base reductions.

      • Rerhaps the lender knows that they can't force the issue anymore and that getting some money back over the next few years is better than forceing CEP into defalt ?

    • pvxbasher,

      I think the current borrowing base will be reduced from $205 million, to around $175 million. Debt load is currently $171.5 million with with $12 or $13 million on hand and the plans to pay down another $6.5 million this year.

      CEP is managing to stay just ahead of the banks and with production fairly predictable and hedges, they think they can pay down $25 to $30 million in 2011.

      As I have said before, they can last 2 or 3 years in run off mode. Living on the hedged production they can continue to pay debt down to around $100 million, perhaps even $90 million. Around 2013 or 2014 the hedges run out and they will need gas prices in the $6's. Management even said they won't return to maintenance drilling until pricing returns to $6/mcf. That isn't likely to happen over the next 2 years. At $6/mcf, most of the shale plays are very very attractive and producers would be rushing to complete the many numerous wells that have been drilled but not yet completed while others would be bringing monster Haynesville and Marcellus wells online as fast as they could.

      The only thing that can save CEP is an infusion of capital and an acquisition of properties that would allow them to restore distributions, however small. Otherwise, they just keep letting production drop for 2 or 3 years. Production is the mothers milk of and E&P company. It is dang hard to build critical mass and stablized production. If you let it run down to nothing, you end up holding a bunch of worthless leases.

      • 1 Reply to rrb1981
      • rr:

        I'm an amateur at the accounting but I wonder if there is another alternative to a costly equity raise.

        According to the press release they have $195M borrowing base with current borrowings at 168.5M plus $18.2M in cash and equivalents.

        Now if one assumes they need to maintain at least a 10% operating buffer in cash and borrowing reserve, that would leave them with a maximum of $25M to invest in the next 6 months (195 * .9 - 168.5 + 18.2 = 25.2).

        With solid hedges for several more years, why couldn't they use that $25M to buy some primarily oil properties to stabilize the cash flow. With a current market cap around $75M, that $25M could move them toward a maybe 80/20 NG/oil mix.

        In addition, all else staying the same, wouldn't this also tend to raise their borrowing base somewhere in the $12.5M-$25M?

        This would more than offset the expected $10m annual reduction in borrowing base due to their under funding maintenance cap ex by about $10M next year.

        With the addition of the potential $25M annually they hope to have next year in loan paydowns they could wait till the next borrowing base recalculation in the spring and recalculate how much they have available to invest in additional oil properties and slowly make them a more balanced oil/NG E&P with more stable cash flow.

        If they keep deferring paying any distributions until NG recovers (if at all) while continuing to reinvest by purchasing oily properties, by the time we get to 2015 (no NG hedges) they could be primarily a oil mlp which could potentially support a stable distribution.

        Would appreciate your thoughts.
        - Al

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