RE:RE:RE:RE:RE:RE:RE:SomedayTheRexmember wrote
More or less agree, although I don't think any of these companies had too much debt - I think they just got caught in a hard spot with lenders that were exiting the business due to political BS. In past years debt was allowed to routinely blow out to 3X cash flow at the bottom of the cycle. What will we be at in December? .5X ?
CJ was almost in bankruptcy protection over a tiny 30 million dollar loan so its not the actual debt load that is usually the problem. They need better covenants, properly staggered maturities, more dependable lenders etc.
At 14,000 boe/d 150 million in debt is a pretty comfortable amount to carry - especially with BNE's oil cut. We will be somewhere between 110 million and 140 million on Dec. 31st depending on prices. Interest costs of 10-15 million per year on a business that is earning 10 million in free cash flow per month... stupidly sustainable.
the drop in the CAD has offset most of the decine in oil prices from 90 dollars. Gas prices are back over 5.00 with winter around the corner...
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BNE a 12 000 barrel per day producer had well over $300 million in debt for many years after 2014 when oil prices crashed and stayed in the $50 range for many years. They were just burning up resources year after year and not paying down any debt. Of course everything depends on oil prices. At $100 oil $300 million in debt can be handled and payed down very quickly. At $50 oil they were not doing very well.
Every oil company especially these small ones is at the mercy of oil prices which we all know can be very volatile. The only way for them to protect themselves is to have low or better yet no debt. In that way they can survive low oil prices. $150 million in debt may be comfortable at $80 plus oil but at $50 oil it is still to much. Once debt is down to $150 by the end of this year BNE could start paying a $1 per share dividend and still have aprox. $85 million in Free Cashflow left over to keep paying down debt. Once debt is down to that level some money can be given back to shareholders while still paying debt down quickly.
In time it would be nice to have no debt and piles of cash in the bank to buy assets on the cheap whenever the next oil price crash comes as it always does.
Good luck to all.