RE:RE:RE:RE:Re: DebtKontrary wrote
I'm pretty sure that Management doesn't care what I think, except for the fact that the Market appears to agree with me.
They didn't just issue "more shares", They iincreased the share count by 60% when it was trading at very low prices. Using oost-consolidation numbers, at the end of Q2, Surge had approximately 44.7M shares (post consolidation) shares outstanding. They then issued approximately 27M shares to buy Astra and assumed that company's debt.
According to the company's June 22 2021 news release, Astra will add approximately 4,000 BOE/day to the company's production. At the end of Q2, Surge was producing just over 15K BOE/day. So they increaed the number of shares by 60% to increase daily production by 26%. Part of the problem was that they had to do that to make the acquisition because they couldn't do it using debt and/or internal cash flow. Instead, they had to massively dilute shareholders equity by issuing millions of low-priced shares.
They've now added to this by issuing another 12M shares to buy 1,500 BOE/day of production.
Surge's shares were trading at twice their current value as recently as January, 2020. They have dropped significnatly post-consolidation. Perhaps the Market is seeing something that you're not?
sclarda wrote:
"I would be happier if they would just be an oil and gas E&P company and just stop making acquisitions."
I doubt they take your happiness into concern when doing acquisitions.
"Note that this does not say. We plan to take on more debt and significantly dillute shareholder equity by issuing a large number of shares.
It also does not say that they would not issue more shares to increase production by 5500 barrels of oil per day in a rising oil price market either.
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You are not adding your numbers correctly. Surge was producing aprox. 15000 barrels per day before the 2 acquistions. The acquisitions added aprox. 5600 barrels per day of production or aprox. a 37% production increase and added aprox. $16.5 million in debt. Surges debt before the acquisitions was aprox. $292 million. 37% of that debt is aprox. $108 million.
Basically the production that Surge had before the 2 recent acquisitions had aprox. 6.5 times the debt per barrel of oil produced than the debt that was assumed in the acquisitions. You can not just look at the number of barrels of production before the acquisitions without looking at how much debt Surge had.
The point of these 2 acquisitions is to have the company go from being a 15000 barrel per day producer to a 21000 barrel per day producer or an increase of 37% in production with only an increase of less than 6% to the total debt.
In a high priced oil market such as the current one Surge with these acquisitions has increased Free cashflow by a lot which makes the amount of debt relatively speaking much less as a percentage of Free cashflow and allows total debt to be payed off much quicker. At $80 oil Surge should have Free cashflow of aprox. $160 million next year. That means that the $16.5 million in debt they assumed with the 2 recent asset purchases will be payed off in aprox. 5 weeks.
Surge was doing poorly because the asset purchases of year ago were done with a lot of debt and then oil prices stayed low for years. If they had not issued all these shares for these asset purchases and taken on debt instead it would have add aprox. $218 million dollars in debt to their existing $292 million of debt which would have meant Surge would now be sitting at aprox. $510 million in debt. Or they could have not made any acquisitions and their Free cashflow next year would likely be around $100 million instead of the $160 million they will now be making. A lot of poster only see the dillution of shares to buy these assets but they dont mention the major amount of extra Free cashflow that these assets will generate.
The reason Surges shareprice has not climbed along with other oil companies this year is because of bad hedges and too much debt. The hedges will be coming off soon and with the increased scale of the company because of the 2 recent asset purchases in a high priced oil market the debt will soon be shrinking quickly.
At least thats how i see it.