Tapstone Energy EBITDA ticks up in 2Q18, liquidity concerns loom

Tapstone Energy booked USD 37.5m of adjusted EBITDA in 2Q18, up 26.7% year-over-year, according to two sources familiar with the situation.

The bottom line uptick was due in part to higher production levels in the NW Stack assets. The E&P player’s NW Stack assets in Oklahoma averaged a production rate of 17.8 million barrels of oil equivalent per day (mboe/d) in 2Q18, the sources continued. Total production for the quarter came in at 30.1 mboe/d, representing a 1% uptick from 1Q18 and a 15% increase year-over-year. As such, the top line also grew, with revenue in the period coming in at USD 62.7m from USD 54.35m in 2Q17, the sources added.

Despite the earnings growth, Tapstone’s liquidity position has raised concerns for some investors, given heavy reliance on the revolver, the sources said. At quarter end, Tapstone’s liquidity stood at USD 137.7m, which included just USD 1.3m in cash and USD 136.4m available on its USD 310m revolver due 2023.

“You’re basically living off of your credit card, and the credit limit likely isn’t going to be increased and you still have your interest payments to think about,” one of the sources said.

The GSO-owned E&P company paid down USD 13m of its revolver in the recent quarter, and bought back USD 5.5m of its senior notes, ending its repurchasing program for its senior notes, according to the sources. “It’s good to repay your revolver…but as for the notes, it’s not big enough to be meaningful so why do that?” the first source said.

The borrower’s USD 300m 9.75% senior unsecured notes due 2022 last traded in size on 7 August at 88 to yield 13.898%, up from the 85/86 context in May around the time when 1Q results were announced, according to MarketAxess.

On a sequential basis, EBITDA in 2Q18 is down 2.8% from 1Q18, the sources noted. The quarter-over-quarter downslide was attributed in part to weaker realized pricing, caused by hedges.

The producer’s 2Q18 capital expenditure totaled USD 73.5m, of which USD 62.6m was engaged in drilling and completion and USD 4.7m was used in NW Stack asset acquisition. The company increased its drilling and completion budget for the year to USD 235m from USD 220m. Tapstone also projects an additional USD 15m of leasehold, seismic, midstream and corporate capex, sources said.

The company could burn around USD 117m of cash this year, assuming USD 152m of annualized 1H18 EBITDA, USD 235m of capital expenditure, and USD 34m of interest expense, estimated one of the sources.

Tapstone did not respond to requests for comment.

2018 Debtwire

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