Delphi Energy Corp. DPGYF

Delphi Energy: 10% Interest on the Notes & Management Issues

[George98]

With annual operating cash flow at approximately $30-$31 million, DEE can fund only 3 wells per year within its annual operating cash flow because it has the most expensive Montney wells in the Montney space that currently cost $7.5 - $8 million each.

Excluding any cost overruns, DEE (without support from a jv partner) can't materially reduce its leverage and grow its production with only 3 wells per year. Something's got to give. Even on a buyout scenario, DEE is weak without any negotiating power. Any potential suitor knows this.

Unfortunately, the senior secured notes have 10% interest. No question that this debt is expensive, which results in high annual interest expenses.

However, one more thing concerns me. Management said for one more time in October 2016 that the exit production in 2016 would be 9,000 - 10,000 boepd, see presentation below:


https://www.delphienergy.ca/upload/media_element/attachments/31/October%202016%20Presentation.pdf


Again, this is October 2016, which is just 2 months before December 2016.

Finally, DEE exited 2016 at just 8,600 boepd, see presentation below:

https://www.delphienergy.ca/upload/media_element/attachments/41/January%2020%202017%20DEE%20Presentation%20Final.pdf

This exit rate is well below guidance although they guided the market just two months before December 2016. You can call it inconsistency, lack of operational control and more.