RE:RE:RE:RE:RE:Analysts are sleeping againPaul is a great CEO. It seems though this oil price decline caught him off guard. He went into the decline with a balance sheet that was overleveraged to begin with. I really don't like it when its more then 1x cash flow. When the bad times hit, and your more then 1x cash flow you can't weather the storm for as long as some of the competition. He also failed to hedge an adequate amount for a dividend paying company, only 34% which all expires in July, and some token amounts after that. And here was the final straw that broke the camels back, he deicided to use the debt he paid off in Q3 to buy some more things and add it all back again. $555 million is a lot of loot, and almost 3x leverage by the end of this year assuming $58 average for oil. Of course this amount was kept from the press release so one had to do some actual work to find it.
This makes investors nervous about longer term sustainability in an oil price environment that lasts lower for longer. If oil prices recover quickly then these oversights quickly get brushed under the rug and no one cares anymore.
As a result of the above issues, investors have now hammered Surges price to a 50% discount (on per flowing basis) compared with that of say a WCP. What this means is that Surge would have a hard time being competitive. While WCP can walk in a buy some distressed oil assets for say $50,000 per flowing and provide massive accretion to shareholders, Surge would have a more difficult time finding anything that works. Maybe some smaller purchases of say 1000 bopd could be had for a good price, but trying to get anything that moves the needle will be nearly impossible. I'm guessing the best solution at this time is to find a reasonable merger and try to make 1=1=3 over the next year.
Anyhow I have said what needs to be said about this and will now limit my future posts to my own website. So if you have any further follow up questions please ask me over there.
www.tradinglarge.com