MCEP had a solid quarter. DCF just south of 9M consistent with my expectations. The biggest news though was the raising of convertible preferred equity @ 8%. This is in-line with what peers were able to do during oil peak prices in 2014.
Based on debt reduction coupled with the future production increase via the recently announced acquisition I see the following given current strip prices (i.e. oil in low 40s):
- positive DCF through 2018
- net debt to trailing 4 quarter EBITDA maxing out at just under 4.0 @ 3Q/4Q 2017, but staying under 4.0. This is key
- can just keep chopping wood for the next 12 to 18 months and be ok - paying down debt and servicing capex with free cash flow. No common unit distributions expected until 2018 given current oil prices
- THIS IS KEY: the borrowing base issue has largely gone away.
- Per the CC if oil prices stay where they are currently, there is a high likelihood borrowing base will stay where it is. This will free up cash for MCEP to pursue additional bolt ons
All in all the news the last few days has increased my bullishness on MCEP. Long 10K shares @ avg price of 2.30
Disclosure: I am/we are long MCEP.