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Lonestar Resources Has A Second Chance

Apr. 06, 2018 4:33 PM ETRanger Oil Corporation (ROCC)44 Comments


  • Lonestar stock is bucking the current market trend.
  • Production increased nearly 60% year over year.
  • Cash flow increases will follow that production increase.
  • Debt was successfully refinanced though at a higher interest rate. This also pushed out the secured bank credit line maturity.
  • Management has drilled some big wells and has the potential to drill more big wells to dig itself out of its debt and preferred stock bind.

The stock of Lonestar Resources (LONE) has been resisting the market downtrend. That is good news for the long suffering common stock investors.

Source: Seeking Alpha Website April 3, 2018

This stock has actually managed to climb in the latest time period while much of the market is dropping. Some of this is due to the fact that the company had a near-death experience. John Pinkerton, Chairman of the Board, alluded to this during the conference call.

But the last two years have borne some fruit. The debt due dates have been extended. Management has about $100 million or so available on the bank line of credit. The balance sheet is very highly leveraged with about $300 million of debt and roughly 84,000 shares of convertible preferred stock.

But, this year, management acquired some acreage, and the well results represent the quality of the acreage. So, there may be enough financial flexibility for this company to find its way back from almost dead and highly speculative.

Source: Lonestar Resources 2017 Year-End Earnings Slides Presentation

The company increased the interest rate paid on the debt due to extend the maturity of current long-term debt due. The new interest rate is slightly more than 11%. That refinancing also extended the maturity of the senior secured facility. Therefore, no material debt is due for approximately two years.

That gives management time to show some results. The preliminary drilling results are very encouraging. This company needed some large well results to climb out of the debt hole, and it is getting those results.

"Quickly, I'd like to turn - touch base with on Brazos County on Page 9. Wildcat B1H has produced 320,000 Boe in 10 months and its well on its way to producing 350,000 Boe units first year. These wells continue to perform 62% better than the average

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Analyst’s 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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