RE:RE:RE:Outline for a model of 2018 production First, thank you Yash for offering me the incentive to update my spreadsheet.
I would also say I am very glad the board decided to reduce the dividend to $0.06/month. My call was 7-8cents because of their stubbornness. I am very deceived they took so long, adding $200M of debt in 2017 to support this too high of a dividend. When debt financing rates are below 4% it is very easy to fall into the debt trap (leverage) that will cause high volatility in shareholders value. Instead of acting in early 2017, they decided to keep this unbalanced situation throughout the course of the year. This is now a thing of the past and lesson has been learned...I guess or I hope?
The next question is: Will they be able to reduce debt as they decrease production and receive lower value for the NatGas they are selling, and keeping the dividends? IMO, buying back shares is improbable. They need to reduce leverage first unless Natgas prices pick up. My long term scenario is $1.75/GJ at AECO because of the pricing fight coming from US producers. What would happen to production volumes, Cash Flows or perspectives if it trades below $1/GJ for 3 months and less than 50% is hedged at $2/GJ. This would be catastrophic because the 4% interest rate debt would become toxic.
My 2018 average quarterly forecast taking your template from a previous post:
Q1. 106.2K boe/d. NG = 96.2K NGL 10K.
Q2. 102.4K boe/d. NG = 93K. NGL = 9.4K.
Q3. 99.1K. NG = 89.4K. NGL = 9.7K.
Q4. 96.2K. NG = 89.9K. NGL = 9.6K.
2018 average: 101 boe/d
You and I are using the same numbers provided in the press release. But we have to be careful with quarterly averages, yearly averages and decline rates, end-of year production additions. A 35% yearly average base decline rate assumption is not very useful when we know the evolution in time of the production volume of a well. Does it mean 115k boe/d on the last day of 2017 will become 75k on the last day of 2018? Or does it mean the decline rate went from 40% on the first day of 2018 down to 30% on the last day, averaging 35% for the year? But the biggest question remains, will they be able to sell their unhedged production after 18Q1?
The impact of this on quarterly average liquid production:
17'Q2: 8300 boe/d
17'Q3: 9000 boe/d
17'Q4: 10 200 boe/d?. Calculated from a 11 000 boe/d last day of 2017 production.
You can expect a pretty high decline of liquids production from these new wells. if Capex goes down to $45M-50M in 18'Q1 they won't be able to replace production decline even if they
" focus on the most liquids rich portions of the Company’s Deep Basin assets."
I expect $485M in CF for the year and have used $220M in Capex and $125M in dividend, leaving $140M which they hopefully would use to lower debt.