I think your conclusion is wrong...While your figures regarding percentage of production hedged may be accurate, the company (and its investors) should want to see higher natgas prices, not lower.
Even if 64% of their current production is currently hedged, 36% is not...Wouldn't you rather the company sell it at $4.46/$4,75/$5.00 instead of $3s....Moreover, if prices do continue to run higher, DBLE will now be able to begin to lock in hedges for 2015 at higher, not lower prices.
Any time that prices rise, the theoretical value of the reserves in the ground increase, not decrease...Am not saying that the marketplace will necessarily push the stock valuation higher, but the company will have the opportunity to lock in better/stronger future cash flows by selling/hedging at these higher levels.
A "mark to market" loss on their derivatives positions may look bad.....But, that derivatives loss is offset by the higher cash price that the company will realize when they unwind the hedge...In other words, if DBLE has to buy back is "short hedge" at $4.72 (up 50 cts from your $4.22 avg figure),, then the company will record a 50 cts derivatives loss...Offsetting that, however, is the cash sale at the same $4.75 figure..In short, the company simply sold its gas "too soon/too low" at $4.22...But, company felt that the margin it was locking in at $4.22 was sufficiently good enough to ensure good cash flow.
In short, hedging programs are never designed to "top tick" the market in the hopes that prices will go lower...The industry cash flows always improve with higher prices...If prices spiked next week to $5, DBLE (and perhaps others) might consider hedging more of its 2014 production, and perhaps even sell some of its 2015 production.....Let's say 10% of 2015 production at $5....Now, if the company were lucky enough to hedge 10% of its 2015 production at $5, wouldn't you want prices to climb to $5.50 so that the company could lock in even more? I would vote for it
Yes, I declared there was little upside to the company....Clearly, from a "trading sardine" perspective, the stock saw a 50% gain from $2 to $3......I pointed out that the company's cash flow has shrunk and that the company's total indebtedness of $87MM could not be easily ignored, esp with the 3.5X bank interest covenant coming close to being hit.
I never predicted that the company was going to go out of business....Certainly, I did not foresee a 50% spike, either...so, you've got me there.
But to believe that the share price has significant upside is to believe that either
1..NG prices are about to rise significantly (in which case, there are many other ng companies one can buy, too)
2 Or, that the company is sitting on a big Niobrara discovery, a theory that has not been supported by any facts to date.
So.....Obviously, the stock got beaten down mercilessly on what might have been (in hindsight) either panicked selling or year end tax loss selling (or both).........So, while $2.84 is nicely up from $2 just 3 weeks ago, that same price represented a 52 week low just 2 months ago.
Is DBLE heading back up to $3/4? Or, is it broken and stuck in the 2s?
I submit that there is still little upside for the company....Perhaps it can rise from here on M&A event...If so, then somebody else has deep pockets and believes that he can extract additional value from the collection of assets that DBLE has assembled....If so, then the company does, indeed, have value....But, I am not convinced that that somebody is going to pay $4/share which would imply TEV of $130MM...Even $3/sh is TEV of $119MM or 6X an ebitda number of $20MM which was the high water EBITDA mark in the past year.
We shall see
So, in the span of a few weeks, DBLE's equity valuation has jumped $11MM, a 50% gain...Quite impressive....Even more impressive was the volume yesterday, a huge 400+K shares...Clearly, somebody wants in.
By the numbers, however, DBLE is fully fully valued....Bank debt of $47MM Pfd outstanding of $40MM...Now add $33MM common stock valuation....TEV is now $120MM......What is run rate EBITDA for the company?
$13-14MM If so, company is now trading at 8-9X...rather pricey
If it is $20MM, then company is trading at 6X....Fair, but not cheap
Perhaps somebody does want to buy out the company, viewing a $33MM stock market valuation as cheap and highly levered, considering there is $87MM of debt/leverage on the company...Perhaps the buyer can re-finance those obligations and save $$ that way....Maybe a new buyer can save signficant SG&A by combining DBLE with its larger operations....Finally, if DBLE were to go private, there would be significant savings on costly annual SARBANES OXLEY filings.
Given that the company recently awarded stock options to management in the case of a 2014 takeover, it is not unreasonable to think that such a development may be playing out.
But, I am not convinced that DBLE share price has significant upside from here given the metrics listed above...
Every dollar in share price equates to approx $11MM, which represents a signficant part of the company's annual cash flow....
Would be bit wary of the preferred, too...Company has no obligation to redeem it in case of a takeover/change of control...Depending on those circumstances, the preferred may or may not be a good proposition.
Stay tuned, as somebody (somebodies) wanted "in" yesterday
Not sure what conclusions to reach....Management shake up is not going to solve the problems facing DBLE....The company faces serious uphill climb, as Xmas Meadows is effectively dead, and the Niobrara is a true wildcat with no jv partner in sight to help underwrite $6-8MM horizontal wells....DBLE is a Rockies' natgas producer with diminishing cash flows....Stock has been pummeled to below $2 before its recent recovery here....Still, a long way from the $5-6 price range it held earlier thisyear.. Dole has presided over a deteriorating situation and his demotion from Chairman means very little if he is still calling the operational shots.....Free cash flow is a challenge at the company, and until that resolves itself, share price is likely to meander here in the $2s.
What fear mongering? Reality has set in for DBLE....Company's cash flow has fallen to $13-14MM which means that the leverage through the pfd is approx 6-7X....Moreover, one cannot rule out t hat the company might trip a bank covenant of 3.5X Ebitda coverage with $47MM bank debt outstanding.
Good analysis....The preferred (being junior to the bank debt) is NOT part of that 3.5X Ebitda calculation, as the bank debt ranks senior...In other words, DBLE has to pay its bank obligation BEFORE it pays its preferred dividends. You appear to be right that imminent de-listing is not likely..Nevertheless, the share price has little room for meaningful upside given the production declines and declining "hedging" revenue in 2014.
My apologies.....I must have gotten a bad screen shot, as the DBLEP preferred did not trade in any large volume at all today.....Doesn't change the leverage numbers that I threw out there, but most definitely 100K shares did not trade today...Again, my apologies
The preferred caught a nice bid today with over 100K trading.....If cash flow stabilizes at $14MM, it is levered roughly 6.6-7X through the preferred....if cash flow rises once more to $19MM, then leverage drops to just below 5X....Common stock still not doing so hot, as company has a lot of wood to chop. Remember, too, that with $47MM in bank debt outstanding, company is flirting with that 3.5x Ebitda covenant....Company really needs to see those new WRES wells begin to de-water and produce more gas to improve cash flow and comfortably get the numbers away from that 3.5X Ebitda test.....$47MM/3.5 is approx $14MM, which is where annualized cash flow currently sits......If bank covenant ever gets tripped, that will cause some havoc, even if it is not quite fatal...But, will probably cost the company to remedy it, if it should come to pass.
I am hard pressed to see DBLE surviving much longer as a publicly-traded company.....Why would BOD hand out stock options to management in the event of a 2014 takeover unless likelihood of such a transaction wasn't substantial? Stock is now trading at or below $2....There is real possibility/risk of de-listing...Natgas pricing outlook isn't too sexy, so future cash flows will be muted...Yes, production should improve with operational upgrades by their Washakie partner...Still, though, organic growth seems challenged, esp with Niobrara project going nowhere fast.....
Yes, there is another word...But the BOD is clearly not independent, as it is inconceivable how any reasonable board member could reward management with equity options in the event of a takeover after the stock has FALLEN nearly 65% this year.....Sadly, shareholders are stuck with this unless somebody has enough time, energy, and money to institute a suit against this action....Somehow, shareholders are so disaffected that that is highly unlikely....And so the sad story will play on....Let's face it, DBLE is a broken story and a broken stock...Xmas Meadows project is dead....Niobrara has been one endless and costly delay for years (not months) now....And natgas production in the Rockies just isn't sexy.
Yes, that is a curious award..270K shares if the company gets taken over in 2014....And an acquiror need not worry about having to redeem the pfd stock, as there is no requirement to do so in the event of a change of control....Very interesting
I doubt WRES is going to spend any signficant $$ on Niobrara...They would prefer to farm it out to others and let them write the checks, as WRES cannot afford to take a flyer on such high risk drilling when they have "lay up" drilling to do in Wilmington with IRR's exceeding 60%, in some cases approaching 80-100% IRR.
DBLE really needs to cross its fingers as it stock price is clearly spiraling out of control. As for Entek, I somehow doubt that WRES wants to pin its future on Niobrara wildcatting...They have their own acreage with which to hit a home run if everything works out.
You miss the point...They are drilling those CBM wells so that they can retain the deep Niobrara rights...They forfeit those rights if they do not drill all these wells, per BLM stipulations...The ROE on these gas wells pales against their oil returns....Simply doing it to preserve the optionality of their Niobrara holdings, which they hope to farm out to somebody....Not saying that they will necessarily succeed on that front, but why let an option expire if you can hold onto it by drilling some economic gas wells, even if they are not as economically robust as the core oil operations.
I highly doubt that WRES has bid on DBLE...Nor should they...DBLE is in trouble, with the stock price plummeting now to $1.99....Company has $47MM drawn on bank line, a $40MM 9.25% pfd, and equity mkt cap of $22MM...That is approx $110MM....Measured against that, the company's current annualized cash flow is $13-14MM, down from $19MM due to operational issues...That is 7X-8X multiple through the common stock....Very unappealing to any buyer as DBLE has de minimus FREE CASH FLOW...Roughly $5.3MM goes towards interest and dividend payments....Even if cash flow bumps back up to $19MM next year, company would have only $14MM after interest/dividends to fund capex.....if cash flow stays at $14MM, then company only has $8-9MM for capex....And DBLE only produces nat gas, which is not sexy..Their Niobrara acreage is totally unproven as their SCIENTIFIC well cost $11MM and has yielded nothing commercially. So, WRES is not likely hunting for DBLE.
Mr. Market values WRES' (and DBLE's) Niobrara acreage as a goose egg.....Highly speculative as no real commercial production nearby despite Entek....Cannot see WRES developing horizontal fracking wells in Niobrara at $7MM per well.....Rather, they are hoping to farm this out to somebody with deep pockets and far greater understanding/experience with unconventional shale plays....Not sure how aggressive outside players wish to be on still unproven Niobrara territory where WRES is...I think WRES either has to try to do its own hunting around to prove up Niobrara hydrocarbons (which costs real $$) in order to attract a partner, or they will have to wait wait wait to see if somebody else scores success nearby and wants to knock on their door....
I believe WRES is focused on trying to acquire more unconventional oil fields ala the Leroy Project where they can apply their Wilmington playbook success.
As far as DBLE, they should "Just say No", unless DBLE goes Ch 11 and assets can be bot cheaply. Not sure DBLE goes Ch 11 imminently
Perhaps the smackdown that DBLE (its Washakie Basin partner) is suffering today has spilled over into WRES....Not sure that this is the real reason...Probably is related to the $1 sell off in oil today.
Be thankful that WRES is not DBLE, however....WRES generates its cash flow principally from CA oil and not from Washakie Basin nat gas
For anybody who thought or thinks that WRES should consider buying DBLE, I highly doubt that that will happen unless slides down the slippery slope towards a restructuring...Even then, nothing too sexy about Rockies' nat gas....WRES is only there because there is some hope of a Niobrara wildcat....At least WRES will only attempt it if they can find a j-v partner.
Today could be the first day that DBLE closes below $2....Pfd holders should begin to get increasingly nervous......Company currently paying 3.3% on $47MM of bank debt, or approx $1.57MM per year.....Pfd dividend is approx $3.6MM/yr.....Company also needs to plow money into capex in order to keep reserves from depleting....Yet, annualized cash flow is currently running at $13-14MM....Yes, there have been operational snafus....But, can DBLE truly report annualized cash flow of $19MM? If so, the pfd is probably OK...But if cash flow is now stuck down at $13-14MM, then a 5x-6x multiple puts TEV of DBLE at $65MM--$84MM......Bank debt is $47MM and the pfd is $40MM for total of $87MM....In other words, the pfd is not fully covered even at the high end of this range.....And, remember this....Company could always decide to stop paying the pfd dividend if things do not improve materially for the company's cash flow next year.....Dicey situation.
From your lips to God's ears...Your evaluation of NAV using 3P prospects is suspect, as Mr. Market had the stock at $6 earlier this year and has relentlessly ground down to $2.20 here tonight.
Yes, cash flow covers debt and dividend....But company has $5MM in interest/div expense....Current annualized cash flow of $13-14MM only leaves $8-9MM for capex....yes, perhaps compressor issues will be solved and volumes will expand...Still, this company will just barely cover cap ex needs and divident/interest obligations...In other words, no free cash flow......Even at $20MM annualized cash flow, the company would be trading at 6X multiple with stock at $2.20.....Is DBLE worth another turn, or 7X.? If so, stock goes to $4.20....Nice up move from here, but still down from $6 where it began this year.
Sellers of stock down here may not believe management is capable of turning things around...Buyers think the worst is behind them.....We shall see....What is unmistakeable is that company has lost jv partner at Xmas Meadows...Has not produced commercial hydrocarbons from this $11MM Niobrara test well....Has now revealed that only horizontal fracking can bring home the Niobrara, an undertaking they cannot afford (at roughly $5-7MM per well). And, finally, their bread and butter production of Washakie Basin coalbed methane gas has faltered this year, whether it is their fault or their partner's fault.
Company is not going out of business here tonight, that is for sure...But it is a tough slog to see where company can hope to generate genuine free cash flow
Hard to give the company benefit of the doubt given the awful execution to date...In short, the company now has $47MM drawn on its bank line.....Add $40MM pfd and now add equity mkt cap of $26MM...You arrive at $113MM TEV......Annualized cash flow of $13.5MMish.....That means the company is trading for 9x EBITDA through the stock.....I would say that that is fully valued.....Company is dangerously close to its 3.5X Ebitda coverage on bank loan covenant....Yes, they can sell a lease here/there to raise $$ to pay down revolver a bit, but they are already dangerously close to the 3.5X level.
They are paying nearly $1.5MM in bank interest...Another $3.6MM on pfd dividend...That is $5.1MM If they are generating $13MM in cash flow, that leaves just $8MM to plow back into capex....The math does not work.
Leverage through the pfd is 87/13.5 or approx 6.5x Ebitda....No wonder the pfd is no longer trading at par or above....If company makes continued mis-steps, the preferred could become impaired.
In short, WRES has no reason to want to merge with DBLE at this valuation......9X EBITDA for the stock at $2.20 is a horrible price to pay...WRES already has the same Niobrara deep rights tht DBLE has....They don't need to pay up to get more exposure....The rest of DBLE is pure natgas, and there is nothing sexy about natgas these days...People complain that WRES cannot seemingly grow its CA oil operations, but at least they are producing oil and not gas.
DBLE quickly needs to do a j-v on its Niobrara as they do not have the financial capability to do horizontal drilling out there.....
In short, DBLE stock price looks hard-pressed to rise significantly unless some Hail Mary completions take place immediately ahead...Otherwise, it will continue to sag and could implode further on any more bad news. Yes, DBLE might see improved cash flow as operational issues in the field improve...But, the company is NOT generating free cash flow....
On the bright side, at least they are not the one-trick pony that DBLE, their Washakie partner, finds themselves to be....As long as WRES is on the prowl for acquisitions, they might wish to keep an eye on DBLE developments...Stock price has fallen from $6 to $2.20 this year....Looks like their Niobrara well has not panned out....Company could be flirting with real financial difficulty ala bank covenants in the coming quarters....If this occurs, WRES might have an opportunity to expand its Washakie Basin/Niobrara exposure, if they so desire.
Wonder whether company will be facing possible de-listing with mkt cap below $27MM here tonight. Pfd is also taking it on the chin. Pfd holders are in a pickle, too....If company finances deteriorate, that 9.25% dividend rate may not properly compensate for the risk inherent in the company...And, if the company gets taken over due to its paltry equity mkt cap, the pfd may remain outstanding, as there is no requirement that it has to be redeemed. All in all, BOD has presided over a god-awful mess. Company spent $11MM on a science well, a ridiculous sum of money for a company with such small cash flow. Niobrara seems like a pipe dream at this stage. And with natgas still only a $3 affair, not a lot to get excited about. Wonder if the handful of street analysts will simply drop coverage.