Metals have reversed and gone higher, gobbled up by gremlins who await the reintroduction of the gold standard. Despite what my opinions are, the move to the upside is impressive, causing me to wait to short more AG–sometime later down the road. When I speak of short positions, remember that I am 110% leveraged net long.
AG becomes interesting to me, as a short, north of $17. When the metals catch respite, they tend to run for a few days, before embarrassing themselves once again, bankrupting their loyal shareholders with reckless abandon.
I’ve been doing some homework on KWK and want to buy it–but it’s too risky for me, especially since I’m fully invested.
In a nutshell, here’s what’s going on.
They have $2.1 billion in debt, $438 mill due in 2015. The bonds are trading healthy, as if nothing was wrong with the company and they are unsecured. Odd no?
They’ve drawn $550 million from an $850 million credit facility, which is scheduled to be “redetermined” in April. The credit line is likely to be cut.
They’ve been promising joint ventures and asset sales for more than a year, in the barnett shale and horn river basin. At current prices, they are estimated to raise anywhere from $100 million to $300 million–parting ways with property.
They’ve cut cap ex to the bare bones, down 59% from last year to just $120 million.
Botton line: they need to recapitalize their 2015 debt, else it’s lights out. Production is going down, low single digits, and their only hope is to partner up with a big oil company to develop their fields for them. Unfortunately, many natural gas companies, like GMXR, CWEI, are trying to do the same thing right now, which is bound to have an adverse effect on asset prices, in this case acreage.
If they get a positive response from the bank in April, regarding the credit facility, the stock might go to $3. It’s also very curious to me that the bonds are trading without a care in the world.
For a trade, this might work–especially if natty goes up. It’s also worth noting, they, like CWEI, have superb hedges, with more than $300 million hedged north of $5.00 for natural gas.
If you enjoy the content at iBankCoin, please follow us on Twitter
Fly, I’ve read about investors looking to scoop up shale assets like these cheaply by investing in bonds of companies with natural gas, NGLs, and oil shale assets by investing in the bonds and waiting for the companies to go belly up. The assumption is that as the NG prices bankrupt these smaller companies and NG exports begin, prices will begin to recover.
My guess though, is that they would be looking at companies with more distressed bonds than the KWK bonds. Any thoughts?
Thanks,
Tom
look no further then HEK for a good nat gas play.
Gold is so 2012. Bitcoin will be the new world standard.
$TTNP – anticpating spinal scaffold will get exemption soon as a HDE, shortens approval to start clinical trials this summer. A dozen paralyzed monkeys have regenerated limb movement (this does NOT refer to gold bugs emotional state after the recent dip)