OK, now that we are all up to speed with hedging, what it means...

OK, now that we are all up to speed with hedging, what it means and what was and is required to be hedged under TAP's credit facility, lets get back to the real issues of the credit facility.

As was disclosed in the Qtrly released Jan 30, 2015 on page 1, the Manora debt facility size is:

1. Linked to Manora Reserves - this would be the Borrowing Base (BB) and almost always this is subject to redetermination on semi annual basis and using the bank's reasonable valuation  numbers (not the company's)

2. Linked to Manora Revenue AS WELL AS 3rd PARTY GAS REVENUE ($30M Gross & $17M Net)

3. TAP is in advanced discussion with BNP/Siam Banks wrt a review of the BB to adjust to:
a. Decrease in forecast net cashflow from Manora
b. Decrease in the BB under the

This was followed by the Company Update released on Mar 2nd, 2015:

1. Banks have agreed to reverse their decision on BB and put it to $82M and maximum draw of $78.9M and WILL BE FULLY DRAWN during March 2015.

2. Hedging via Swaps @$62.5/Bbl from Apr - Dec for 495,000 Bbls (of est 40% of production @4,500bopd for 9 mths). That wont be "free" but I don't think the premium will be that high given where futures are trading presently.

3. TAP has negotiated waivers to the financial cover ratios for the debt facility (but conveniently don't say which ratios and what values - my guess is it is the interest cover ratio, the asset cover ratio and a debt leverage ratio most likely Debt/EBITDAX). THESE WAIVERS ARE TEMPORARY UNTIL JUL31, 2105. IMO implies some kind of transaction is needed to solve this problem.

4. Those waivers cost us a higher interest rate (nothing is free) but obviously required else in breach.

5. Deferral of repayments during waiver period - so assuming interest becomes PIK and tacked onto the loan which clearly has some event on July 31 - one of which is almost certain to be reduction of BB again and TAP needing to repay the difference between $78.9M and new BB (which is unlikely to be above $68.5M). Equity or subordinate second lien loan (read high interest) or asset sale or .....


I don't hold TH responsible for price of oil. I hold him and the BoD responsible for how the price of oil affects the company's operations - esp cash flow and debt knowing full well that banks only care about your cashflow and the value of the collateral pledged as security.

These problems have to be fixed between now and Jul 31.




Coopec,
just for you - hedging is only a part of the story and you have to understand the company. So in that list of companies and %hedged one company is CLR - effectively the king of Bakken shale producers. Yes they CURRENTLY have now 0% hedged. But they were hedged. Back in early Nov'14, Harold Hamm their CEO, Chairman, Founder and major stockholder famously declared the bottom for oil was in and monetized their entire hedge book for some $400M+ in cash with the price of oil about $75-$80ish.

How silly does he look now?
http://www.reuters.com/article/2014/11/06/us-contl-resources-ceo-hedging-idUSKBN0IQ18R20141106