I will qualify my bullishness by the following:
- The Company obtained waivers fromits Revolving Facility and TermLoan lenders,executed on May 8, 2020 and May 11, 2020, respectively, to waive the event of default arising fromthe inclusion of the going concern explanatory paragraph included in the audit report for the yearended December 31, 2019 and other related defaults. These waivers were effective April 29, 2020, subject to the conditions set forth in the waivers. As described in Note 15, in consideration for the waiver under our Revolving Facility, the Company agreed to certain limitations on its ability to effect draws under the revolving credit facility until such time as the second quarter 2020 borrowing base redetermination has been completed. In addition, in consideration for waiver with respect to the TermLoan, the Company agreed to amend certain covenants in the TermLoan,as to be mutually agreed with the TermLoan lenders, within 15 days from the execution date.
So 11 May +15 days = 26 May. We have until 26th May to amend certain covenants. If we fail to agree these amendments the consequence is an event of default.
Hopefully they are close to agreement on those terms and it will come before the end of this week (given America is closed next Monday for Memorial Day - that would be cutting it very thin).
A positive I missed
- Since the sharp decline in oil pricing in March 2020, we have renegotiated pricing with a number of our vendors and we have secured contractualarrangements with drilling and completion service providers at reduced costs relative to those in place during 2019 and the assumed cost structure used in our year-end reserve report. Additionally, we have changed our field operating procedures in response to the material drop in oil prices which furtherserves to reduce ourcost structure relative to that assumed in the Company’s year-end reserve report. We are actively working to secure additionalcost savings and ifcommodity prices remain lowfora sustained period of time, we expect further reductions to ourcost
So basically the PV10 value of $675M is likely to be higher as a result of lower capex costs as well as lower operating costs (interesting average for 2019 was $12.86/boe). They don't say how much but 10% would get us to $11/bboe
Other interesting point was
- In January 2020, we amended our Revolving Facility to increase the overall facility from$250million to $500million,and to increase our borrowing base to $210million (with initial elected borrowing commitments of $190million). We are currently restricted in our ability to make draws until the finalization of oursecond quarter borrowing base redetermination. As of the date of this annual report, $58.6million was undrawn (net of $16.4million of outstanding letters of credit),although we are currently restricted frommaking any newdraws under the Revolving Facility untilcompletion of the borrowing base redetermination to be completed in the second quarter of 2020.
So our Revolving Facility limit was increased to $500M (showing asset worth in Jan), albeit somewhat nebulous now. The second quarter BB redetermination should come at any time. Wouldn't be surprised if it comes hand in hand with the amended covenants.
My initial optimism is somewhat subdued now, at least until those amended covenants are agreed (and get to see what they are/ impact on solvency risk).
I do think once it is agreed though, there will be more upside. I do think it is agreed in principle too, hence the strategic wait to release the Annual Report.
Until then, just more waiting - at least this time it's finite - 8 days to go.
