The answer lies in production vs. interest servicing cost per barrel and maint. cap and exploration cap that must be spent to keep production flat example they produce 5000bopd 5000boe of ng, or on a rev basis 6000 bopd interest servicing per year 82million dividends by (6000 barrels per day x 365 day) = 37.44 per flowing barrel of interest servicing cost annually . they will need to spent 20-30 million in maint. cap and 70-80 million in drilling to keep production flat or approx. 100 million dividend 2.19 million barrels produces a year = $45.66 per flowing barrel to keep production flat at 6000/bopd
When you add it up it tells you the price per barrel at 6000bopd (I say 6000 barrel of oil because its 5000 oil and 5000 ng, 5000 beo ng generates the same rev as 1000 barrels of oil though ng margins are inferior but I'm being generous to the bull case and granting it ) to live within cashflow.
SO breakeven of 50$ + 37.44 debt servicing + 45.66 maint. cap and drilling cap to keep 6k a day flowing in 2016 = the price oil must be sold at to remain solvent = $133.1
Of coarse if oil were $90 they could sell assets and JV TMS etc which would lower the cost. BUT the only cure is higher prices, much higher price and higher production to spread their fix cost across more flowing barrels. You can see how selling the EFS with 2k of production does little to the numbers
Lets say they get 200million for EFS and knock debt serving to 62million, do the math the loss in production outweighs the 20million in saving increasing the debt servicing per barrel to $42.46 raising the breakeven price by 5$
Their production is far to small for their debt. They would have grown into their debt oil at $110 with some assets sales, but not now and with oil futures 2 years out below $75
To achieve higher production they have to spent more money, which they don't have or have to borrow and pay interest on.
It's a sobering illustration of where the company is currently.
go back and review my cashflow analysis, especially actually break-evens in TMS including interest servicing and corp expense. They have to raise money again soon. dividend on Pr will most likely be cancelled this q or next.
yeah accept EOX needs more capital so first 1 for 20 then a 2-3 million share offer doubling the share count. If your break even is above a $1, you are done for many years. It seems to me this company exists not to produce oil but to create an ATM for the insiders with phantom stock issuing,,,giving Deare a freebee on converting some debt to stock to cash out with...
I don't have to own it to add insight and some factual knowledge. I have never said sell or this is a pos, I am saying most of you need to read the 10k and know what you are buying. They have a debt problem which must be addressed. How it is addressed (issuing units, selling assetrs, cutting distribution, etc) will determine if and when I invest. The new IDR structure with 2100 circumvents the making whole of NSLP holders for the MQD when new assets are acquired. Not exactly a bullish sign guy. I've been an oil man for decades, do you know what the interest per barrel and debt per barrel is? Or what is their current service fleet utilization and rate, if not get cracking or you'll be the one with yoke on your face son.
I understand that, just curious why he'd be willing to sell them down here at all time low? And why a new IDR structure is being created. His sales makes 2100 the future controlling power of NSLP, he'll hold 51% of the votes
They gave a hell of a presentation in NY at the OG, you can listen on the website, 12tcf is possible reserves and increasing IRR into the mid 20% at current price deck. Pretty amazing and solid liquidity. With the large proved reserves and favorable economics, large block acreage 200k in bulter alone, we could easily catch a take-over bid.
BBEP, has to dilute the shareholders with massive convert preferred shares and cut distribution by 50% on top of the already 50% reduction and BBEP is a pure E&P with huge reserves. NSLP is primarily a service company. And we all know how much drilling and rates for services have declined, you can't produce cashflow from a truck that is sitting idle.
reality check, they expect a 20million decrease in borrowing capacity, they need to come up with 15 million with credit line being pulled in then another 8 million to get it below 90% credit line utilization to be allowed to pay any distributions at all it's in the terms of the line. Plus they are in a legal battle with the old chairman who owns the two operating companies that operate of the oil and gas assets, a large portion of our receivables are booked against those operators, meaning he (his companies) receives the cash from the oil and gas on NSLP behalf and then is suppose to remit it to us....which he will and has delayed payment of to use as leverage against us in settling legal claim....it's hard to get bonds for a small service company and the booked reserves are tied to the credit line so issuing 3-5 million units seems in the cards to come up with the 20-25 million NSLP will need to satisfy the banks. Please read the 10k to understand all the moving parts and limitation to paying out a distribution if
If they were on our side they would have upside the secondary and left the debt in place because it cost 2%.... it's like borrowing 100k at 9% to pay off your mortgage thats only 2% makes no sense and only benefits Deer and shows management is owned by Deer.
because originally the debt converted into shares at $8, it wasn't very dilute, but converting debt even at .90$ a share (a 50% prem to current price) means Deer will own 75% of the company, its assets and upside, leaving little on the table for the shareholders, not to mention they will still need capital to drill and will replace deers debt that cost only 2% with something that would be around 8-9%
another point is the actual proved is around 102 million barrel in 2014 they let 25 million role off due to the sec 5 year drilling rule, so in light of that each share has about 1.3 barrels proved (1 barrel oil, .3 LNG,NG)
a little back of the envelope calculation of buyout value= 20-24$ per share proved ( 75% oil weighted) then 4-5 barrels of p2,p3 at 2$ a boe= 8-10$ = $28-34 - net debt per share of $10 = Nav of $18-24 or midpoint of 21$
50% margin of safety = $10.50
I know, I know we are not in a normalized market for oil yet, and I stress yet but now that liquidity is moving off the table and 2015-2016 and with 75% hedged in those years, 2017 will be a more normalized year in oil prices, with global depletion and limited cap ex globally, cancelation of major deepwater projects, etc in 15, 16, 2017 could see a shortfall in supply of 800000-1.2million barrels driving oil back to a 90$ range (just to where oil sands and ultradeep water are off the table where we will realize and trade at our nav between 10-24$, should this come to pass a 700-1800% return in 2 years isn't bad at all.
In the mean time 6-12months $+3-+5 is possible.
The saving grace is the low maint. cap and decline of the Aneth which accts for 6000bo/d, that alone will keep the lights on now that the banks are being supportive.
but if they can have the convertible debt converted into shares at .60 vs. the original $8 then they get 90% ownership in the company for a song....earlier this year the board elected to allow them to convert 20million into shares at around $2, a 75% discount to the original deal, even though the debt was being carried at only 2% interest......because they are on the board they same to get special treatment, so they in the end may benefit but the shareholders may not....i'm on the sidelines watching now, wondering how things will shape up and if the company after the reverse split will give White Deer another freebee
They sold non core that had little upside p2, p3 reserves, the price won't reflect the value of their core assets such as the Permian basin.
You should check in on Tues on the website for their new presentation that they will give at 10:30 am in NYC , I imagine it will provide greater clarity.
I agree, form an MLP, drop down Aneth, do a exchange of shale assets for mature producing with established production