Twin Butte Energy Ltd TBTEF

RE:RE:RE:RE:RE:Cuts : Capex 22 % Div 37.50 % DRIP gone

[PUNJABI]

If the oil dip is for short term & around $80 WTI TBE’s balance sheet is ok.

But today WTI is at $55.51. At lower oil prices they do not have saving of $58m from dividends. They do not have that money. At $55.51 WTI  they have a weak balance sheet that cannot even fund their huge decline rate of $32 % & they have lot of debt for reduced cashflow. They are much better than some other companies but it does not mean that they do not have serious issues at these lower prices. One has to be very objective & see the things as they are. If the situation of a company has changed accept it.

All oil stock have dropped a lot but it is not necessary that at even at the present share prices some of the stocks are cheap. Vast number of leveraged oil companies cannot make money at $55 WTI. Some have operating cost of $20 + royalties $15 = $35. Looks like a decent margin but when you add in decline rates that is a killer plus interest payments. So when companies cannot make money at these prices then logic tells us that oil prices will likely go up. The BIG question is when? If it is long enough then it can damage lot of companies.

All these leveraged oil companies which pay dividend use all their netbacks on capex & div but rarely pay down the debt. They never really plan for bad times. All they do is hedge for a few quarters & think it is enough.

TBE has just $85m left in their line of credit. If the oil price is low for next year then it will be reduced. Under $60 WTI their borrowing might even increase.

Lot of companies have hedges for a quarter or two. So it will take then about that time to be fully exposed. Highly leveraged companies will go first.

Now with $85 m in LOC & stock under $1.00 what is TBE going to pay for the assets.  Borrow money ? who is going to lend them ? Some US banks are going to take a big hit on their shale debt.  Shale junk bonds are also held by institutions. That debt has to be liquated then you can call the bottom.

I do not know how long the oil prices will stay low. But I am prepared for them to stay low for more than few quarters.

I am student of market corrections. One cannot take anything for granted. One should make assumptions but should have a plan for exposure management. I cannot wait for 2 years to make money in an investment.  The long term buy & holder investors do panic from time to time & make bad decisions under stress. There are times it is wise to take a loss & walk away from an investment.

My experiences have forced me to become a short term investor. They are advantages & disadvantages. Some make plans for a few years. My problem is that I cannot figure out things in advance for a few years. That is my limitation.