I come up with a bit more than 5.5 million shares, but at any rate, more shares have traded today than are in existence!
The company's book value was over $46/share post/split for the quarter ending March 31, 2015. While there might be some more write-downs, there have already been considerable write-downs in the last few months.
Emerald has enough cash to wait this thing out a couple of years. Their assets will regain their previous market value if oil prices rebound over the same two years. Why not just hold on a bit and let it work out?
There's no need to screw things up for the shareholders just to get a bit more property?
So what was the need to go out buying more junk property, given that it would require a capital raise?
It might be nice to get some respect for the value of existing property.
What if the current shares get diluted by 80-90% once USEG floats its $100 million of new capital?
but not for the good of the existing shareholders.
Doesn't matter whether they drive the existing share price down even more, it's just a balancing matter of the percentage of the company owned by existing equity owners vs those with future shares. The dilutive offering is for $150,000,000, not a fixed number of shares.
Boolean created 2/3's of the posts, so it's not surprising to see the lower response rate.
IMO, the entire E & P sector is focusing on the quality of its assets and the availability of liquidity. Short term earnings reports like today's are meaningless.
ESTE has an incredibly strong balance sheet relatively speaking for this sector. I don't know about the quality of its existing properties. Pay attention to the deals and the price of oil, this company will look quite a bit different in one year.
I guess we find out Monday morning as oil was pretty close to $50 for the entire last quarter as they said....
For example, we expect to use $82.72 per barrel for oil and $3.84 per MMbtu for natural gas to compute the ceiling test limit as of March 31, 2015. Had these prices been used to compute the ceiling test limit as of December 31, 2014 and all other variables (including applicable differentials) remained unchanged, we would have incurred a ceiling test write-down of approximately $14 million. Further, if we assume that the oil price is $50 per barrel for the remainder of 2015, the oil prices used in the ceiling test limit calculation would be approximately $70.06, $57.63 and $50.11 at June 30, 2015, September 30, 2015 and December 31, 2015, respectively.
I'm expecting more than a $100 million write-off of properties. It is already built into the the share price, so anything less than a $100 million write-off could be bullish.
This will be just one of many E & P companies that take big impairments.
Revising PV-10 is a result of following SEC guidelines, not doing something for the lender. The ceiling test for property impairments occurs each quarter. In fact if you look at ENRJ's last two 10K reports, you will see that price hasn't even impacted the reserves yet.
Instead, it appears the company had to classify many of their proved reserves into non-proved reserves. SEC rules will not allow a reserve to be classified as proved if the company expects development to take more than five years. Thus many of the reserves could no longer be included in the PV-10 calculation.
Regarding price, if WTI oil stays at $50 for an entire year, I'd expect ENRJ's PV-10 to get written down another 75%, with a big chunk of that being announced in a few days when Q1 2015 comes out.
While the company’s 2014 year balance sheet looks good, the PV-10 is marginally above the company’s book value of properties. That means it will get hammered with write-offs, particularly in Q1 and Q2 2015.
All the $ 23 million in debt contains financial covenants, so I’d say if we have $50 oil through September, the loan is called, the writeoffs are such that there is no net worth, and the stock becomes worthless. There are other companies with bonds that give breathing room for three or four years, so it’s not just the debt ratio, but the terms of the debt.
If oil stabilizes at $70, it’s another story. Classic scenario for many other E & P’s , this is just one of many, not a diamond in the rough.
Thanks for posting it, we should watch it through Q1 and see what happens.
Reserves are valued based on a 12 month backward looking rolling average. I wouldn't be surprised to see a nine figure write-down for the next quarter. If we get to the point where the 12 month rolling average for WTI is $50, EOX could ultimately write off $300-$500 million depending how its unproved property is impacted.
But as that long term WTI figure stabilizes from $50, to $60, $70 or hjgher, there ought to be a leveraged impact on the EOX share price.
I've seen this done to many small caps. The SA article provided no good fundamental reason whatsoever to buy this stock. FPP will write-off all of its net worth within two quarters, then it will have debt covenant issues.
Just amazing all those dingbat comments that have shown up on the SA and Yahoo message board. Wow.
For some reason, White Deer bought quite a few shares at $1.12 just a few weeks ago.
IMO, the primary problem is establishing the value of EOX properties. While the debt is known, the properties could have a wild range of values.
In 2014, the company invested $479 to acquire and improve its properties, the lionshare of that happening in the second half of last year just as values began to plummet. So the properties are worth less than the purchase price.
Fortunately, the convertible debt has not financial covenants, so it won’t be an issue until 2019. The revolver however has covenants, however the company has properties whose book value was $619 million at the end of 2014. That property becomes collateral for the revolver which we think is currently drawn to about $100 million. Even if loan covenants are violated, that property ought to have some collateral value.
Back to my first paragraph, on the issue of the value of those properties. The PV-10 will change each quarter. Write downs could end up $300-500 million this year if oil averages $50 for 12 months. However, a true market value for these properties might be quite different, and if oil prices eventually rebound in a few years, this property might have its market value return.
I’m a little confused about the need for issuing up to 100 million new shares. It does seem odd that White Deer would put in all that money if more cash was needed for short term debt revolver issues. And it also doesn’t seem likely that the property couldn’t support $100 for collateral purposes. Very odd.
My instinct tells me that the shares are not vulnerable to any short term bankruptcy, and it seems like the dilution and future property write-offs is already built into the current share price. You might wait it out a bit and see what happens, at least wait for the Q1 financial report and see if this issue is explained a bit better.
Truth, IMO ESTE is fairly valued right now. With all that cash, the next few quarters won't matter much regarding operating results. Other companies have leverage, which means cash problems, but not ESTE.
However, it is a fact that the company will take large property impairments, so don't be surprised when you see the Q1 and Q2 results.
As an upside catalyst, I would look for using that cash to get distressed assets at a bargain price. Or they just wait out the current oil depression and start developing their existing properties in two or three years, whenever oil rebounds to a reasonable level.
I only said what I said, no point in reading more into it.
The company already wrote off $19 million last quarter at a time where most E & P companies did not have write-offs.
That means with the new lower price levels applied to PV-10, ESTE is vulnerable to a bigger write-down this quarter. While your point about the cash is a good one, I think the impairment issue is also a subject worth discussing, because it will be significant.