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Gold/Mining/Energy : Canadian Oil & Gas Companies
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To: Kerm Yerman who wrote (4495)1/15/1998 1:58:00 PM
From: SofaSpud  Read Replies (1) of 24927
 
Kerm / Debt

The company I alluded to yesterday was Highridge. Got a bit of an update today which suggests that the company is on top of things.

Average cash flow for 1997 is about $7.5 mil., and exit debt is about $14 million, which gives a 1.9x debt/CF. But:
- if the exit rate is 3000 boe/d;
- half their gas is locked in at $1.94 through 1998;
- 1 mmcf/d is locked in at $2.19 through the winter months;
- so they might plausibly average $1.55/mcf in 1998;
- if they average US$17/bbl
then a CF of $12 or $13 million is plausible. With no change in debt, you get pretty close to 1x.

Wildcard is whether they borrow. The company had announced a capex program of $23 million in 1998, which is under review. It is certain that it will be reduced, but they have not announced by how much. I would think that a bottom for the capex program is 1x CF. Focus will be on development rather than exploration. That said, it sounds like they intend to keep their options open -- if an opportunity lands in their laps (which is very possible in this environment -- how many companies are scrambling out there?), they intend to be able to exploit it.

Bottom line-- exit rate for '97 was about 1.2x D/CF, reasonable chance that it will be below 1.5x on average during the year. Close to the edge of your criteria, so we're depending on management to be astute.
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