RE:RE:RE:RE:RE:RE:Debt levelchurchofnutsacc wrote: sclarda wrote: Flush11 wrote
piles of cash and no debt is just brutally bad business. What are you looking for - a bond return? We need a reasonable amount of debt so when we earn a massive return on drilling we don't dilute the cr@p out of the earnings by having too many shares outstanding.
This company SHOULD be run with about 150 to 200 million in debt depending on the covenants required. Dropping to zero is idiotic.
paying 6- 8% interest rates when the IRR on their drilling is 200% at 90 dollar oil?
get a grip.
Tourmaline is carrying about $300million in net debt right now on over 500,000 boe/d, and you want Bonterra to carry $200 million on 14000 boe/d? What does Tourmaline do with its excess cash? What do you think Bonterra will do with its excess cash?
There are some valid points from all comments except sclarda who is not only a keyboard kowboy but also clearly deficient in business sense.
From a business perspective, if a company can earn a higher return from it's capital vs the cost of servicing debt and after taking inflation and after tax dollars in to account then it makes sense. I've done this myself personally and for business. Still do. However, I always had the cash/exit strategy/liquidity to eliminate the debt if things changed such as if interest rates went higher and the return generated from my capital was reduced as is happening for many businesses now. The exception at this point in time is for energy producers who are still making elevated returns far surpassing the effects of increasing interest rate levels and inflation...for now. It makes zero sense to have a "pile" of cash in the bank with 7%+ inflation. That is just dumb and if someone does this they should be fired.
So the answer is a hybrid of the two. It is true drilling produces a very high rate of return right now so it makes total sense to drill
economic wells, and carry a little bit of cash buffer vs paying off debt. Once debt is reasonable where people can sleep well at night (like now) then there is nothing wrong with carrying the debt while generating higher returns with cash on hand. As long as they don't live "paycheck to paycheck" and have a buffer to smooth out rough economic times then all will be well.
The acquisitions happening in the market these days are dumb really. These geniuses should have been buying when things were trading at $10k/flowing boe not 60k like today. Why do you think CNRL has been so successful? buying when blood is in the streets but they plan for the worst, hope for the best, and swoop in when they see opportunity (i.e oil crashes) instead of having to go to see bankers on their knees cap in hand begging for help because of an economic downturn. CNRL, and IMO among few others are not only prepared for a downturn, they embrace them.