Delphi Energy Corp. DPGYF

Delphi: Leverage, High Operating Cost, Most Expensive Wells

[George98]

DEE lost $25 million in Q4 alone. Aside the surprisingly high losses in Q4 2016, DEE faces additional challenges in 2017.  

DEE's key problems are associated with more than one factors such as high leverage (3 times), the highest operating cost per boe in the Montney space and the most expensive Montney wells among the Montney peer group.

DEE's leverage is 3 times, see annual report.

DEE's operating cost per boe is $16, see annual report. This figure includes transportation cost and the high interest expenses due to the debt burden. This is the highest operating cost per boe in the Montney space.

DEE's Montney wells cost $7.5 - $8 million each now, which is the highest cost per Montney well among the Montney peers, as quoted from DEE's recent press release:

" In 2016, the Company continued the trend of reducing drill and completion costs for its horizontal Montney wells at Bigstone reporting a record low gross average of $7.5 million per well compared to $8.1 million per well in 2015, and $10.4 million in 2014. "


Experienced market participants know that the high cost per well on an absolute basis for a highly leveraged junior producer with limited liquidity is a key headwind on its path to survival. The cost overruns aside (cost overruns are likely in this business), the high cost per well limits DEE's ability to materially reduce its debt burden while also growing its production. Something's got to give.