I posted this on IV as comparison to PNE who got slashed their credit line from $ 145 mln to $ 85 mnln - after they implemented their steps to remedy this they gained ~60% in 2 months.
I think the same can happen here - and RMP is in a much, much better state than PNE with ~ $ 40 mln CF at current prices. Make your advantage with it, or don't. But stop the BS that RMP"s house is on fire.
Let me start by saying they handled the credit re-determination poorly and SP has been indicative of that for a long while: shareholders are not happy with Management and neither, if I am to believe the rumors, is the street and quite likely the banks. Not a good starting point for sure.
Spending $ 20 mln on Gold creek sounds ludicrous from credit determination pov, and I was pretty mad about that, as it seems to have destroyed the sp. Still, if you ask me now, I prefer that they have it rather than not. For the simple reason that come start 2017 they can probably get 2000-2500 boepd production out of this which if only measured @ $ 30.000 is $ 75 mln high end - so they added value here. While their gap to credit limit is still very manageable. But fine, that's an opinion
However if you look at the cold hard data of what needs to be solved, you can see the following:
- Glaring nr 1 point: the Gap of PNE to credit determination was $ 60 mln and for BXE a couple of $ 100 mln (?) when they started of the process - RMP's is 0 if measured by end of year (debt expected to be $ 95 mln vs $ 100 mln stepped down credit line). The gap end of October is $ 5 - $ 10 mln BIG/HUGE/MASSIVE difference
- Debt to CF for RMP is in the 2's for BXE it was like 18 or so and now 10? don't know exactly but CF is paltry compared to the still high debt
- PNE is CF negative so you can't even calculate debt/cf but let's say they make $ 10 mln this year (a big reach) their debt/CF than is 8x
- And this is all AFTER they exhausted all avenues of bringing debt down
- And why is it that RMP is much closer to their new credit line? Because they stayed within CF most of the time and were 'only' drawn $ 100+ mln debt on an initial credit line of $ 175 mln
- "PNE is basically 100% NG", yes indeed, and that's an advantage?? - No. they basically have no Cash Flow while RMP does, driven by it's 40+ percentage of OIL
- If you read the PNE Energy summary note as well as the NR's they basically didn't start fixing the credit issue until June 1st when it was clear it would be slashed and they were forced to address it and subsequently bought more time: basically exactly the position RMP is in
PNE fixed a $ 60 mln gap in little over 2 months. So the real question everyone needs to ask themselves is: do we believe this management can fix a max $ 10 mln gap in the same time-frame.
I would say the logical conclusion is a resounding: Yes.
Now this does not solve their capitalization issues, so there are a number of other outcomes but survivability is NOT an issue. Seen the sp people seem to doubt that and herein lies the opportunity.
Not one where you have to wait for higher O&G prices, that would be another boost but a rather immediate one when management fixes the short term credit limit issue. But to each their own. You can always sell from here...
Good hunting,
R.