RE:RE:Obsidian's banking and why discuss it here?Re: Bonterra's next bank review at end Q2.
Bonterra will have a new presentation up shortly which will, I expect, provide better visibility as to how they will fare and potential timelines. There may be other things in the wings that cannot be discussed until "the offer" is decently buried.
Bonterra’s Dec presentation, while perhaps overly guarded so as to give Obsidian as little as possible, showed projections at WTI/US$50 and US$55 that would clean up the balance sheet. We now need projections at higher prices and updated production numbers. Of course cash flow is going to be balanced only between capex and debt reduction. This is a turn-around situation and no one is suggesting that this is going to be any quicker than cash-to-the-banks permits, but when it is turned around Bonterra will blossom forth again as a fat boring cash cow.
As Obsidian has discovered, most Bonterra shareholders, however unhappy they may be right now, are committed to waiting for this to happen. The stock price will languish while it does: both because there is no excitement and also because the stock is too tightly held by private interests. As Eric Nuttal is forever saying as his excuse for ignoring a company: it is impossible to find any decent-sized positions to buy into.
Bonterra has had a 21-well drilling program on the go since Nov; along with other work to bring production back to pre-covid levels. I suspect that they are doing all this within cash flow; i.e. that there will be little or no increase in net debt at the end of the first quarter. Second quarter will see very little capex and all the cash flow from this increased production going against debt; in part to give the banks the comfort they seem to need. Barring another price meltdown in the meantime, the lending syndicate should thereby be very content; even if prices do wobble, they will take their fees and roll on. In the short run it is about the direction the company's balance sheet is going; once that that is established it will be about managing velocity and momentum.
For all the cynicism about banks, what they want is income and what they need is security for their underwriting. Cash flow gives them the former and a combination of forward strip, pricing as it impacts reserve valuations AND confidence in management are all factors in the latter. Access to capital is getting harder: increasingly this is regulatory (including the ESG madness) and therefore there is less on offer and it is more expensive. These are factors that those who care can revisit and compare when we can see where Obsidian is going. Examining Obsidians track record certainly doesn’t do that company any credit when you look at where it has been; and we have a hard time figuring out where Obsidian is right now. Or at least I do; but then I don’t really care, save that, to put it politely, they go away.
Of topic, I re-read what the above written at dawn this morning and am embarrassed at the typos; and reminded that one has to copy last-second edits back out to some program that does spell check before hitting ‘post’. Stockhouse needs a more modern interface that does this; or to provide the ability to edit; even if only for 15 or twenty minutes.