Oil And Natural Gas Crisis: Managing Leverage Risk Using EBITDA-Focused Data-Visuals (VIDEO)

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Includes: UGAZ, UNG, USO, UWTI
by: Dallas Salazar

Summary

While calendar Q4/15 might have wrapped up roughly three weeks ago the quarter has yet to be reported by E&P’s across the sector.

But outside of the obvious what should be the focus of upcoming reporting?

We think two things primarily: full year 2015 EBITDA growth/contraction rates and estimated full year 2016 EBITDA growth/contraction rates.

From there everything else can be backed out; ability to maintain existing debt, ability to “live within cash flows”, ability to use operations to derisk/destress the operating model, etc.

We believe the following investor presentation should provide a risk management roadmap for immediate term trading as well as provide some initial framework for long-term risk management.

While calendar Q4/15 might have wrapped up roughly three weeks ago the quarter has yet to be reported by E&P's across the sector. There's no doubt the market is expecting nothing but blood to be reported; sure, and justifiably so. But outside of the obvious what should be the focus of upcoming reporting?

We think two things primarily: full year 2015 EBITDA growth/contraction rates and estimated full year 2016 EBITDA growth/contraction rates. From there everything else can be backed out. What do we mean by "everything else"? Well, ability to maintain existing (and for many growing) debt, ability to "live within cash flows", ability to use operations to derisk/destress the operating model, etc. Put another way, quite literally everything.

In advance of the official reporting we've put together data-visual dashboards which map out our full year 2015 and full year 2016 EBITDA growth/contraction rate estimates. We've also mapped out, via BI-derived data-visuals, each E&P's net debt/EBITDA ratio (a figure that expresses how levered up each producer is), each E&P's EV/EBITDA to net debt/EBITDA ratio "scatter plot" placement (to express how each E&P is being valued to peers based on the expectation of being able to maintain its existing debt), each E&P's immediate-term risk indications (expressed via one month CDS spread pricing and 12-Month Default Probability scoring), and each E&P's risk indication scoring to its current valuation multiple (via "scatter plot" placement to peers). We believe the following investor presentation should provide a risk management roadmap for immediate term trading as well as provide some initial framework for long-term risk management - focusing primarily on the estimated full year 2016 EBITDA growth/contraction rates.

Remember to be data-first but not data-blind. As of late being data-first has provided very handsome returns.

Enjoy.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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