Twin Butte Energy Ltd TBTEF

RE:Punjabi

[PUNJABI]

 Over the years I have learned  never say never in stock market. Investors should be  prepared for every possible scenario.

Every oil company with leverage is capable of going bankrupt. As long they are able to service debt from cash flow they will be fine.  Oil companies do  not have to pay dividend. They do not have to continue to dig new  wells. They may need to speed some money to work on some existing wells.  When the commodity is trading at very low prices then why spend money on new production & lose money. So what if the production goes down because of the decline rate.

At this time TBE is not at the risk of going bankrupt.  Over the last two quarters they have reduced their debt & have some room in their line of credit.

Their debt to cash flow ratio is very low.  There are companies that have a ratio of over 4 times. In case of TBE it future depends on the Oil price &  for how long these prices will last.

If the prices stay at these levels for multi year lows then all oil companies are in trouble.  In my life time I have not seen the entire sector going out of business. Oil is a very vital commodity. I cannot see oil at these levels till the end of 2016.  By that time companies like TBE will exit.  It is possible that WTI may dip further for a short time.  Market forces : demand & supply will take care of excess supply / glut. It has done that in the past & will do it now.  It is hard to predict the time lines.

I am waiting for the oil to bottom out or till the end of tax loss selling season.  I have TBE on my buying list along with companies like S, ATH, SGY etc. SGY has very low debt.  But S & ATH are trading below their cash on hand values.

S has $398 in cash & short term investments. ATH has $582 million in cash. Plus Promissory notes of $283 million which can be discounted for cash with or without recourse.  I think if there is liquidity crisis in the markets if  China withdraws about a trillion dollars from it foreign reserves then some big oil company are going to raid these companies.

At the present share price of TBE there is a chance that it will become a takeover candidate. Today the market cap is $97 million & bank debt of $225 million plus convertible debenture.
In worst case they can sell some assets for $255m even at fire sale prices to pay debt & survive.  You have to look at the value of assets & the debt.

Lot of oil stocks are pricing in bankruptcy.  It is not that they will go bankrupt but it is that no one is sticking their head out to buy shares & forced selling is taking down stocks.  Look at ATH & S they are trading below their cash on hand.