Liquidity Issues - Sept 30

dan_s · Post by **dan_s** » Mon Sep 30, 2019 9:45 am

Note below is from John White at Roth Capital on 9-30-2019. John covers a lot of the companies in our Small-Cap Growth Portfolio and his is kind enough to share his reports and forecast models with me. - Dan

Borrowing Base Reviews

In our view it is not too early to begin reviewing our coverage with regard to the approaching borrowing base redeterminations. Most credit facilities call for redetermination results on or around November 1. According to our sources the price decks to be used in the November redeterminations are about 4% lower for WTI crude oil and about 8% lower for Henry Hub natural gas. Please see page two. Also on page two, a list of our selected coverage names showing borrowing base amounts and outstanding bank borrowings as of 6/30/2019. In our view, none of our covered names should have any issues in the upcoming redeterminations.

Recent credit related activity at Montage Resources Corporation (MR-NC), Whiting Petroleum Corporation (WLL-NC) and Contango Oil & Gas (MCF-Neutral) indicate the banks may be friendlier in this redetermination season than anticipated. Details are on page three.

Our name with the highest utilization is Ring Energy (REI) (Buy). REI has a borrowing base of $425 million with $361 million drawn as of 6/30/2019. In our current model, we show REI needing to borrow $13 million in 3Q 2019 and $14 million in 4Q 2019, for a total credit facility outstanding amount of $387 million at 12/31/2019. REI has made it known on recent conference calls it expects to experience free cash flow in 4Q 2019. We expect a borrowing base increase this fall. Please see page three for more detail.

Chaparral Energy (CHAP) (Buy), in our view, is in good shape, with a borrowing base of $325 million with $85 million drawn as of 6/30/2019 for a low 26% utilization. True, CHAP’s plan is to outspend cash flow in 2019 and our estimates are for about $38 million of borrowing in each of 3Q 2019 and 4Q 2019 for a total credit facility outstanding amount of $162 million at 12/31/2019. A high level of well completions in 2H 2019 likely lead to a borrowing base increase. Please see page three for more detail.

Earthstone Energy (ESTE) (Buy), in our opinion, is also in good shape, with a borrowing base of $325 million with $110 million drawn as of 6/30/2019 for a low 34% utilization. Similar to CHAP, ESTE also plans to outspend cash flow in 2019. Our estimates are for about $41 million of borrowing in 3Q 2019 and $33 million in 4Q 2019 for a total credit facility outstanding amount of $184 million at 12/31/2019. We expect an increase to the borrowing base this fall. Please see page three for more detail.

While Goodrich Petroleum's (GDP) (Buy) 73% utilization looks high we note the company recent completed a favorable refinancing of its revolver. We expect strong additions to the reserve base with activity weighted toward 4Q 2019 and GDP’s several year history of prodigious well results and thus a nice increase in the borrowing base. We model only about $10 million in revolver borrowings from 3Q 2019 through 1Q 2020.

Lonestar Resources' (LONE) (Buy) 71% utilization also looks high, however, we also expect strong additions to the reserve base in 2H 2019 with activity weighted toward 4Q 2019 and LONE’s recent trend of strong well results.