Kicking Horse Energy Inc. V.CEX

Debt increases dramatically 1,178% WOW

[Valueinvestor9]

Kicking Horse Energy Inc. Announces Financial and Operating Results for the Three Months and Six Months Ended June 30, 2015
 
 
I thought I would comment on a few of the highlights within the Q2 results.
So they swapped 27 sections of deep rights at Chime to acquire nine sections of Montney rights in Kakwa.  What is the question, if this is such a great play, why is a company selling its lands to Kicking Horse.  If it is such a great play then why did the other company not want to proceed with development of the lands.  Could it be that the well cost is to high and the NPV on the wells is negative. 
 
The company announced that they had

Funds from operations(1)

$

7,031

Now that was for the three months ended June 30^th.  So after drilling more than twenty wells the company is making $7,031 or approximately $2,343 per month.  Well lets extrapolate this number to a year, that equates to approximately $28,124,00.  Sounds like a big number.  In this environment of low commodity prices what would you pay for that cash flow that is in fairly steep decline.  What I mean by that is that they have to continue to drill to hold their production even.  It is sort of like a little hamster running in a cage in one of those wheels.  All they are doing it looks like by my review that they are at best recycling monies or maybe even losing monies ( they did announce a loss of $2,144,000 for the quarter).  So what is this annual cashflow worth 3 times approximately $84,000,000, is it 4 times cashflow $112,496,000 or could it be on the really high side 5 times cashflow $140,620,000.  Where is the company trading at Market Cap wise, 60 million shares trading at based on $2.45 the market cap is $147,000,000. Oh but you need to take the debt off.  That stinky little debt of $47,000,000.  Now where could this stock trade to, hmm  even if you used a FIVE times multiple this stock should trade to approximately $1.67 per share.  Now that is not a good thing.  That is almost the dollar amount where all those Donnycreek shareholders cost base is.  Look out below.  Call you Broker?Adviser.  Ask them to do the calc’s.

Now I have a hard time believing that this company gets that multiple of five times on cash flow because I do not think at this time they can sustain their planned drilling program, they are going to suffer large scale loss of lands in less than one and half years and they have significant debt.
Do investors understand that this company in the last 6 months has increased their debt by 1,178%.  If operations are going so well, why is their debt increasing so dramatically.  In six months the company has increased their debt by approximately $43,000,000.  Now you may say, what is the big deal.  The big deal is that they are close to the maximum of their line.  And that is not good.  What do they do when they run out of monies?  Stop drilling, oh that means production will fall.  That makes the market cap lower, and yes the share price then goes down. 
 
Investors ask your Broker/Adviser whether you should be owning this stock at this time.  And if you are considering buying this stock, well read my posts and then take a cold shower and understand we are in a really challenging market.  This stock at this time would be considered by many savvy investors as having a high beta.  Another way to say it is that it could be consider very risky.  Please speak to your adviser 

This is just my opinion, you should do your own research.  The stock continues to fall.