RE:DebtFrom the Q3 report:
As at September 30, 2021, the Corporation had $189.4 million drawn on its committed revolving term facility. The revolving term commitment will continue to revolve until the next scheduled borrowing base redetermination date on or before November 30, 2021. The further extension of the credit facility is dependent on the Corporation's ability to repay or extend the term of the committed revolving term facility that matures and requires repayment on November 30, 2022. As the available lending limits of the facilities are based on the syndicate’s interpretation of the Corporation’s reserves, commodity prices and decommissioning obligations, there can be no assurance that the amount of the available facilities will not decrease at the next scheduled review. In the current environment, there is an increased risk that the lenders may decrease the amount available under the credit facilities and the decreases could be material. Interest rates vary depending on the ratio of Senior Debt to EBITDA (as defined in the lending agreement). As at September 30, 2021, the Corporation had an effective interest rate of prime plus 2.75 percent on the revolving term/operating loan facility (December 31, 2020 – prime plus 3.50 percent).
Yes, debt financing is an important part of doing business, but it has to be carefully managed. Throughout most of this year, Surge hasn't benefitted much from the higher pricing environment because the banks forced it to layer on hedges last year to protect their interests. Some debt is good, but when the creditors have undue influence over the company's operations it's time to reduce the debt.
geezer21 wrote:
There is good debt and bad debt. So long as the debt is earning more then the interest on the debt it is good debt. Even better if it is allowing growth in profits.
With out debt from shareholders, institutional investors, and banks all the oil would stay in the ground.
When a company is in a position to carry on business and keep growing without the bank debt than the interest will cease to come off the bottom line.
However, bank debt can enable a company to continue expanding and increasing profits that more than justifies the debt especially in a commodity bull cycle like the one oil companies are in now.
Surge is doing exactly that.