RE:RE:RE:RE:RE:RE:Re: DebtThere's nothing wrong with my numbers. In my last post, I was talking about the dilution to equity, you went in a different direction entirely.
Surge didn't make these acquisitions using debt because they couldn't. No one would lend them the money. Similarly, they couldn't use internal cash flow because they didn't have that either. Instead, all they had was equity - shares that were trading near their historical lows. As a result, they have recently issued 89% more shares than were outstanding at the end of Q2, which means that each share is only entitled to 55% of earnings as it was a few months ago.
"But that's not a problem because they bought high-value properties that are going to pay off big-time" So let's look at some past history.
- In 2017, Surge had $93.68M in Cash from Operations. Production was 14,922 boepd, WTI averaged $52.44. Total Shares outstanding (calculated post-consolidation) were 27.4M and Net Debt was $239.7M. Cash flow from Operations/Share was $3.46.
- 2018: CFO= $121.9M, Production = 18,058 boepd, WTI = 55.88, Shares = 27,410M, Net Debt = $461.2M, CFO/s =$4.25
- 2019: CFO= 149,417, Production = 21,175, WTI = $60.19, Shares =38.4M, Net Debt = $382M, CFO/s = $3.99
- 2020: CFO= $72.2M, Production = 17,976 boepd, WTI = $37.39, Shares =39.9M, CFO/s = $1.55
- 2021 (9 Months.): CFO=$50,067M, Production = 16,456, WTI = $67.11, Shares = 72.1M, Net Debt = $319.79M (following $90M in Asset sales and assumption of Astra Debt), CFO/s = $1.07 (based on average number of shares outstanding in 2021)
Looking into the future now -
IF the company reaches its production goals and WTI stays at $80, the company is forecasting $280M in CFO, which will translate to $3.53/share, which is lower than it was in either 2018 or 2019, even though the forecast oil price is 30% higher than it was back then. This is what happens when you double the number of shares without doubling the results.
At this time of year in 2017, Surge's share price was $17.43 (post-consolidation) in a $55/bbl "lower for longer" economic environment.
geezer21 wrote:
"You are not adding your numbers correctly. Surge was producing aprox. 15000 barrels per day before the 2 acquistions. The acquisitions added aprox. 5600 barrels per day of production or aprox. a 37% production increase and added aprox. $16.5 million in debt. Surges debt before the acquisitions was aprox. $292 million. 37% of that debt is aprox. $108 million.
"Basically the production that Surge had before the 2 recent acquisitions had aprox. 6.5 times the debt per barrel of oil produced than the debt that was assumed in the acquisitions. You can not just look at the number of barrels of production before the acquisitions without looking at how much debt Surge had.
"The point of these 2 acquisitions is to have the company go from being a 15000 barrel per day producer to a 21000 barrel per day producer or an increase of 37% in production with only an increase of less than 6% to the total debt.
"In a high priced oil market such as the current one Surge with these acquisitions has increased Free cashflow by a lot which makes the amount of debt relatively speaking much less as a percentage of Free cashflow and allows total debt to be payed off much quicker. At $80 oil Surge should have Free cashflow of aprox. $160 million next year. That means that the $16.5 million in debt they assumed with the 2 recent asset purchases will be payed off in aprox. 5 weeks.
"Surge was doing poorly because the asset purchases of year ago were done with a lot of debt and then oil prices stayed low for years. If they had not issued all these shares for these asset purchases and taken on debt instead it would have add aprox. $218 million dollars in debt to their existing $292 million of debt which would have meant Surge would now be sitting at aprox. $510 million in debt. Or they could have not made any acquisitions and their Free cashflow next year would likely be around $100 million instead of the $160 million they will now be making. A lot of poster only see the dillution of shares to buy these assets but they dont mention the major amount of extra Free cashflow that these assets will generate.
"The reason Surges shareprice has not climbed along with other oil companies this year is because of bad hedges and too much debt. The hedges will be coming off soon and with the increased scale of the company because of the 2 recent asset purchases in a high priced oil market the debt will soon be shrinking quickly.
"At least thats how i see it."