In a previous article I had written in January, I warned investors in RMP Energy (OTCPK:OEXFF) to have limited expectations for 2016. I said that because the company's first (and only) priority should be to protect its balance sheet and to safeguard its future in this low oil and gas price environment.
RMP Energy is a Canadian company, and I think it would be a much better idea to trade in the company's shares using the company's listing on the Toronto Stock Exchange. The ticker symbol is RMP, and the average daily volume "up North" is almost 2.5M shares. So the TSX definitely offers you a better liquidity to trade in RMP's shares.
The company produced an average of 11,257 barrels of oil-equivalent per day in Q4 2014, which is an 8% reduction compared to the same quarter in the previous financial year. The majority of the total production was still made up of natural gas, as RMP produced in excess of 36,300 Mcf/day besides 5,200 barrels per day of crude oil and natural gas liquids. Despite the weak performance in the final quarter of 2015, the average production rate in the entire financial year increased by 2% to 12,000 barrels. But it's unlikely RMP will be able to produce 12,000+ barrels in 2016 again.
Source: Press Release
The full-year revenue was approximately C$131M ($98M), which consisted of C$150.6M generated from the sale of natural gas and oil, a minor total hedge benefit and the payment of C$21M ($16M) in royalties on the total production. The pre-tax result showed a huge loss of C$111M ($83M), but this was entirely caused by the non-cash charges as the combination of the depreciation and impairment charges increased the total expenses by almost C$190M ($142M). The net loss was approximately C$85M ($63M) (thanks to a tax benefit), which resulted in a net loss of C$0.69 per share, or US$0.52.
Source: Financial Statements
That's hardly a good result, but you should definitely keep in mind that the impairment charge was a major contributor to this net loss. Fortunately, RMP's cash flow statements aren't as bad as the income statement.
Source: Financial Statements
The operating cash flow was C$91M ($69M), but this does include a net hedge loss of C$10M. Given that this hedge benefit hasn't been realized yet, I prefer to try and figure out the operating cash flow adjusted for one-time benefits, such as a hedging income. To reach that result, I need to deduct the total hedge benefit from the operating cash flow, and this calculation then shows an adjusted operating cash flow of C$80M ($60M). That's not bad at all, considering the company produced less than 4.5M barrels of oil equivalent during the entire year -- this means the netback per barrel was almost US$15.
About Plans for 2016, the Updated Reserve Statement
Unfortunately, the US$60M in adjusted operating cash flow wasn't sufficient to cover the $73M in capital expenditures. Even though the net outflow was pretty limited to just US$13M (which is actually quite good, considering the situation in the world markets), something had to be done as RMP's net debt increased to US$90M. Yes, this still does sound like a manageable amount, but RMP does have to be careful as its net debt/market capitalization ratio increased to 65%.
Source: Press Release
As I explained in my previous article, RMP has declined to release a full-year capex guidance -- which is a pity, as it doesn't really allow me to make any longer-term projections for the company's possibilities for 2016. In the first six months of the year, RMP will spend US$22.5M on capital expenditures, and the company will decide on its H2 budget in the second quarter of this year. The H2 budget will obviously fully depend on a) RMP's ability to generate cash flow in H1 2016, and b) the outlook for the oil and gas prices in the second half of the year.
Fortunately, the net debt position is very manageable. I expect RMP Energy to be able to keep the net debt/EBITDA ratio below 2 at the end of this year. It's obviously a big help that RMP doesn't need to spend as much on capital expenditures as it did in 2015, as it does have a drill-ready inventory.
In an updated reserve estimate (dated Dec. 31, 2015), RMP Energy saw its PDP (proved developed producing) reserves increase by 17% to 15.1M barrels. That's a good result. The reserve life based on the proved reserves was 6.1 years, while the reserve life index for P+P (proved plus probable) reserves was 9.4 years. That's definitely alright for RMP Energy, especially as it appears as if the company is prepared to let its production rate slide, protecting its free cash flow in order to reduce its net debt.
I don't think my investment thesis needs to be changed, and shareholders of RMP Energy still shouldn't be hoping to see any miracles. 2016 will find the company focused on protecting the balance sheet and perhaps reducing the net debt by a few millions. You definitely shouldn't expect any substantial changes in the company's financial health, but I'm confident the company will be able to manage to survive the current downturn.
RMP will see its production rate decrease vs. 2015, but that's not necessarily a bad thing as it's trying to find some middle ground between investing in its properties and generating positive cash flow.
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