Re: UPL may be turning a corner
Not sure why you think prices have to be north of $3 to avoid a covenant breach unless you mean Henry Hub prices before the OPAL discount. The leverage ratio covenant is 4.9x starting in 3Q of 2019 per the 8K filed on Feb. 19. Total debt per June corp. presentation is approx. $1.965B. Assuming debt stays constant, that amount divided by 4.9 = $401m of trailing twelve month EBITDA required to avoid tripping the covenant. If we look at all of 2019 for simplicity, total production guidance midpoint is 245 bcfe and full-year mid-point expense guidance is around $1.14 cents. If we back out the first quarter EBITDA of $115 and production of 62.2 bcfe, the company must generate $286m of EBITDA from its remaining 183 bcfe of production (245 less 62). Calculating full-year expenses of $279m (245 bcfe * $1.14 midpoint) and subtracting 1Q expenses of $76.5m (62.2 * $1.23/mcfe) leaves remaining expenses of $203m. Required revenues would be $286m of EBITDA plus $203m of expenses or $489m. That amount divided by remaining production of 183 bcfe gives you an average required price of $2.67 per Mcfe. In the June deck the company shows that it has full HH and ROX hedges in place for close to half of its gas production and probably 70% of its oil production at an average price of $2.78 per Mcfe. This means that if the company meets its mid-point guidance and debt remains flattish then OPAL gas prices can be probably closer to $2.60 and the company would be OK with its covenants. Now whether that happens or not is yet to be seen, but is certainly easier than for them to be higher than $3.
Would be curious as to why you think 3Q prices need to be over $3.