RE: RE: DEBT That's good analysis. Over what timeframe is your calculation however? Is it possible that this 11.2 number is distorted because of the assets they purchased have not begun to produce the cash flow yet and you are taking the whole cost of the acquisition, but not forecasting a reasonable future cash flow? If so, I'm suggesting what will likely happen is that RPL will bring their best, most promising wells online first out of the lands they have borrowed money to purchase. (The whole Penn west land acquisition is widely regarded as valuable). The juicy well prospects will come first, kind of like leading with your highest trump cards. We should see positive news releases on this over the next few months. As the best of the best wells come online, the ratio will trend lower and the share price will rise.
I don't see the debt as too much of a problem. This is however, assuming they have not entered into foolish debt contracts that bind them to severe covenants. An example of a bad covenant on a debt contract would be the lender forcing them on the contract to maintain a certain cash flow ratio, profitability rate or number of wells coming online per month, and so on. As soon as the borrower falls below any of the stated covenant financial conditions, the lender then enforces his contract rights and accelerates the debt (demands his money back before the maturity of the loan). Does anyone know if they entered into questionable loan agreements like this? I haven't read anything that indicates this. So, if it's a just an unsecured line of credit with no nasty conditions or covenants, there's nothing to fear. Bring the wells online and pay it down. I have not heard that RPL is a default risk (at all). Again, if anyone knows details about the debt structure, please comment.
A small asset sale would be fine, but the lowest cost, easiest way to raise capital is to cut a dividend. It’s free and nothing is required to do this. Management simply meets with the board and it's done. Selling assets on the other hand can be complicated and takes time. You may not get a fair price and it takes your eye of what you should be doing; bringing those wells online. So, given the plunge in share price, cut the divi a little I say. Don't eliminate it though. If management initially calculated that they could borrow money, pay a dividend and bring the wells online successfully at a certain rate, stay the course and drill 'em. If they cancel that divi entirely, it means one thing: They bought dust - not oil - and they are no longer comfortable with their initial calculations. But nothing credible has come out saying the lands are not oily.