Twin Butte Energy Ltd TBTEF

RE:RE:RE:RE:RE:Should Management Sell?

[konzelmann]

Doing my own napkin math on debt to cashflow, if you annualized the Q3 results, you'd be at 1.8X. 

This is using cashflow of 43 million (per cashflow statement) X4 = 171,696

308,000 / 171696 = 1.8X.  Assuming my math is right, this isn't bad at all.  Definitely, the concern regarding debt covenants is only there once hedges fall off.  But if they're looking at trailing 12 months, the relatively high cashflow quarters we've had with hedges this year will prop up a few quarters of 2016 with reduced hedging.  So concern comes up next year around this time if they're doing their review, looking at trailing 12 months (2016) and cash flow is much reduced compared to 2015. 

And again, using some napkin math, I try to run the numbers with no hedging - assuming we duplicated this past quarter, but with no hedges at all.  It does get a little scary then. But I do think that the whole industry is in that situation.  If you have $42 oil for the next 12 months, there are going to be problems for a lot of companies, and TBE is in a better situation than many.  The hedges have bought TBE a year to reduce debt a bit. 

However, the whole '$42 oil for a year, that's when you have problems' scenario gets a little tricky.  Per Baytex Q3 presentation, break even on their lloydminister oil is $44 WTI.  They have nearly 14,000 boepd there.  What happens if that just gets turned off?  Now multiply that for other companies in similar situations.  How many taps are just going to turn off?  What does that do to the price of oil?  So you can say that $42 oil for the next 12 months would be painful to TBE - but I am not sure if that is even a possible reality.  Just like $20 oil isn't a possible reality - how many taps turn off if oil sits at $20?  A huge chunk of North American production just gets turned off at those levels.  It's not really possible for any length of time at all. 

I think this price range around $40 is where oil starts to just be turned off, which creates instant production decreases and upward support on the price of oil as those actions filter through.