Gas producers at risk of lending squeeze: analysts
Compton the first to face borrowing base drawdown this spring
CALGARY — The gassiest producers in the oilpatch could face banks turning down the taps on lending as institutions apply their own dismal natural gas pricing forecasts to borrowing bases, analysts said following the spring revision’s claim of its first victim, Compton Petroleum Corp.
Calgary-based Compton, an intermediate whose production is 83 per cent natural gas, must repay $30 million in outstanding debt resulting from a credit drawdown by May 7, the company announced Monday. Compton’s syndicate of lenders revised lower the firm’s maxed-out credit facility of $140 million to $110 million, which the company blamed largely on a lower gas price outlook from the banks.
As lenders assess annual third-party reserve reports from producers, they’re applying their own price outlook on natural gas in the ground. The risk is they assume reduced ability to generate cash flow from production, in turn scaling down the available debt backed by those assets.
Banks typically do reviews twice a year, in the spring and fall, and 2012 has ushered in the lowest gas prices in a decade. Alberta’s AECO hub spot price dipped below $2 per gigajoule in late February — less than half a high last June of $4.15 per gigajoule — and has stayed there since the beginning of March on a glut in North American gas supply.
“This discussion is probably going on all over town,” said research analyst Gordon Currie of Salman Partners Inc. “In my view, anybody that’s at 50 per cent gas-weighted or more is in some jeopardy here,” he said, speculating that producers at risk could include Progress Energy Resources Corp., ARC Resources Ltd., Bonavista Energy Corp. and NuVista Energy Ltd.
Even worse, Currie warned, reserves could be revised down from current levels as low gas prices mean some of the discovered resource is uneconomic to produce.
A retraction of available credit is a symptom of a “big issue” facing executives in Calgary office towers and investors, the precipitous decline in natural gas prices smacking energy-related equities, said Garey Aitken, chief investment officer at Bisset Investment Management.
“In all likelihood we’re going to see, with a lower price deck being used by bank engineers in many cases, a reduction of borrowing bases,” Aitken said.
Aitken noted Compton might be an “extreme case,” as another producer might be far from tapping out its borrowing base, even with a slash to the limit it can draw down.
The news from Compton follows a previous reduction in the firm’s credit facility announced in January — by $20 million, to $140 million. Skope Energy Inc., a junior gas-weighted producer, had its borrowing base cut for a second time in January.
Compton lowered its production outlook by eight per cent this week and cut the upper end of its capital spending for 2012 by $2 million, to a range of $14 million to $16 million. It also said it hired RBC Capital Markets as an external adviser last month to attempt to raise money through asset sales and/or equity financing.
The options could include a transaction for which Compton’s roughly $500 million in tax pools might offset taxes, said Susan Soprovich, director of investor relations, who stressed the company’s assets have not changed.
“This is not a Compton issue, this is a natural gas issue,” Soprovich said.
Compton underwent more than two years of recapitalization before its entire management team quit last December. In February, the company appointed as president and CEO Ted Bogle, the director who had stepped in following the resignation of predecessor Tim Granger.
Shares of Compton closed at a 52-week low of $2.41 Tuesday, down 23 cents, after losing 33 per cent of their value on Monday. |
