Broader weakness in the oil and gas sector has weighed on Indigo Natural Resources’ bonds over recent days, despite the company reporting a spike in revenue, EBITDAX and production for the third quarter, according to two sources familiar with the matter.
Indigo’s USD 650m 6.875% senior unsecured notes due 2026 initially ticked up nearly a point on 8 November to trade at 96 for a 7.59% yield, after the company reported positive preliminary earnings for 3Q18.
But the notes have dipped by three points since then, last trading on 29 November at 93 for a 8.177% yield, as investors have turned skittish on energy credits amid a plunge in oil prices and ahead of a crucial OPEC meeting this Thursday (6 November).
Indigo issued the 6.875% notes in February to fund a strategic reorganization, combining Indigo Minerals, Indigo Resources and Indigo Haynesville to form Indigo Natural Resources, as reported by Debtwire.
The deal was priced during a rally in oil prices that drove a resurgence of energy issuance in high yield. But oil prices have dropped nearly 20% since then, leading to an increasingly uncertain outlook for producers like Indigo.
“[Indigo] issued this debt when the market was bullish on energy,” said one of the sources familiar with Indigo. “The tides have turned, so the company needs to keep production up to keep its bonds in the 90s. The OPEC meeting will determine what oil and gas names are going to do in the near term.”
The Haynesville, Texas-based natural gas producer reported USD 367m of adjusted EBITDAX for the last nine months, up 120% year-over-year from USD 167m, the sources said. Based on previous Debtwire reporting, that takes LTM EBITDA to roughly USD 469m, leading to leverage of 2.5x based on USD 1.15bn of total debt.
Adjusted EBITDAX for 3Q18 alone was USD 136m, up roughly 77% year-over-year from USD 77m, the sources added. Oil and gas revenue for the quarter totaled USD 214m, up 81% from USD 118m a year prior, according to the sources.
Year-to-date production jumped to 704 MMcfe/day, an increase of 104% from 346 MMcfe/day.
Natural gas was last quoted at USD 4.51, up 40% from the beginning of November and up 58% from February. WTI, on the other hand, was last quoted at USD 53.23, down 3% from the beginning of November at USD 63.69 and down 19% from February.
As of 30 September, Indigo had USD 675m of liquidity with USD 85.3m of cash and USD 590m of availability on its credit facility borrowing base.
Indigo declined to comment.