Part of it is the shorts annihilating themselves, but I think the market liked the earning release!
There will be a lot more interest in LGCY asset sales with oil close to or above $40 with an upcoming OPEC meeting than there would have been at $35. Even a small asset sale should help the share price. I still see no incentive for the banks to force LGCY into bankruptcy. Their incentive is to wait and see. Diodia
I still believe what I posted before. There is no incentive for the banks to force LGCY into bankruptcy with the price of oil going up and the IEA report that the worst is over. The incentive is for them to wait and see what happens, not to force LGCY into bankruptcy at a time when they will be assured of getting the least for the assets. Once the redetermination is over, LGCY prices will improve. Diodia
if oil stays up here, I do not think Wells Fargo and the others will force LGCY into bankruptcy and there will be no need for a debt to equity swap or other drastic measure. It makes more sense for the banks to wait and see. Here's hoping. Diodia
Confference call continued:
Second lien debt possible - they have had enquiries about a second lien and feel they have that ability
They have discussed this debt exchange. Taxable for distributions did not receive, but LGCY has a lot of depletion and a good amount of shield for 2015. They need to do more analysis of this to see tax consequences.
32% of oil is hedged, realize $64.44 if oil is at $35
50% of gas is hedged. $3.38 realized if gas is at $2.15
Slightly below 25% is hedged in the second half.
Gas hedged through 2019
Could monetize the hedges if needed to.
So there is some wiggle room with hedges, capex, etc. It all depends on the price of oil and gas.
This is what I got, subject to correction.
cut LOE 23.5% during 2015, while maintaining production guidance of 18 M so did not achieve cost cuts by shutting in wells.
Beat drilling days by 39%, costs were 16% below estimates
LOE $11.59. Need to pay down debt to further lower costs
Drilled 12 JV wells, 1 Wolfcamp, 6 Sprayberry/Wolfcamp A. They suspended drilling in the less productive areas & had 1 underperforming well.
Had the 15 cent DCF to make the distribution but suspended distribution due to need to address debt. Suspending the distribution saves $ 50 M yearly
Began selling assets. Sold 15 M at end of 2015, assets that were not producing or not profitable.
Plan to sell $50 M assets in Q1, $50 M in Q2.
These properties generate little production and cash flow
Expect to be slightly cash flow positive in 2016 [are price assumptions realistic?]
Do not have contract or lease commitments
Amend credit agreement. 3.5 EBITDA but moves to 2.5 at Q4 Have 125 M available
Production in 2016 depends on oil and gas prices. They will not do well workovers if they are not profitable. They do not have a goal of maintaining production at any particular level. Only drill or workover if profitable
borrowing base redetermination ahead
Preferred will be taxed even if not distributed.
37 M capital budget which will maintain production roughly flat through Q4. If oil prices remain low or decline, could drop this even as far as $10 M
Roughly 97% of reserves are PDP as PUD are no longer economic
Not considering a sale of midstream, but would consider it in right circumstances.. They see the midstream as a big growth story as it has the capacity for much greater volume. Have good leads on adding volumes. Think they will be able to sell it for more if a sale becomes necessary after they have added volumes.
Feel good about the $725M number, but they cannot say anything for sure
Second lien debt possible - they
As I said yesterday, WMC should get to $12.50. I couldn't believe no one was buying afterhours yesterday when the dividend announcement was already out. I suppose we get some kind of consolidation at $12.50, but the volume today is convincing. Diodia
In retail investors' minds it was all debt and it was high yield, so it was all toxic. My stupid buys at $10.56, $10.37, and $10.08. I had the cash to buy a lot more but I was freaked out. I thought there must be some leak about a huge dividend cut. Then I said, but what about the whole loans, the hedges, etc., etc. But I did not have the nerve. Diodia
Retail investors, who are the ownership of REITs, could not figure out the difference between high yield bonds issued by companies like EXXI, which will go to zero because they cannot make enough money at $35 oil to repay their costs, let alone their debts, and mortgages. Mortgages are actually quite safe investments as long as banks do not issue them to janitors making $14,000 a year to buy $400,000 second homes to flip, as was done in 2007. Mortage book values fluctuate but mortgage default rates are normally very low and the mortgage has value after the default because the home still exists, unlike an oil company going bankrupt when oil is way below the break even cost. There is a huge difference between junk bonds and mortgages, but the investors could not see the difference.
In the case of WMC, it was compounded by the press blaring about 25% redemptions at Legg Mason's "Western Assets Management" fund by which they meant the Western Asset Managment Short Duration high yield fund. How I wish I could have figured this out, but I just saw WMC dropping on monster volume and I stressed out buying shares below $10.50. Maybe we will get another chance on some other piece of looney investor confusion. Diodia
It breaks my heart that I did not buy more in the low $10s and that I did some selling at $11 and $11.25 but I did not know there was a Western Asset junk fund which the financial press would refer to as "Western Asset" and that investors would get confused and stampede out. At least I bought some back after hours last night and this morning. What a golden opportunity near $10. At least I have quite a bit of WMC and I only sold what I bought during the dip. What a chance we had! Diodia
The tragedy is that huge drop to just above $10 was just because investors confused WMC with the Western Asset Managment Short Duration high yield fund. I was racking my brain to figure out what all that high volume panicky selling could be but that they thought it was a junk fund never dawned on me. So I did buy all the way down to $10.08 but timidly and I sold some today. How I wish I had bought more and held on to it. WMC should go to $12.50. Diodia