The drastic drop in Moss Creek’s bonds over the last two weeks underscores how delicate investor support is for smaller, private E&Ps, as the selloff in equities and oil complicates their already-tenuous access to capital, said three sources familiar with the company.
The company unveiled its guidance for a 2020 production uptick in late February, which bondholders largely viewed as positive – but the market route has sent yields on its unsecured bonds to the 18%-19% area, compared to around 13%-14% in mid-February, the sources said.
“The selloff is because of the market, not because of the credit. They’re affected more because it’s a private name and it’s hard to find buyers once people sell,” one of the sources said.
Moss Creek’s USD 500m 10.5% senior unsecured notes due 2027 traded today at 69 to yield 18.439%, down 12 points from 81 yielding 14.868% on 20 February, but up slightly from a trough level of 67.75 yielding 18.852% last week, according to MarketAxess. The notes were issued last year to replenish liquidity.
The company’s USD 700m 7.5% senior unsecured notes due 2026 shed more than more than 15 points last week to 58.72 to yield 19.652%, and ticked back up to 60.75 to yield 18.831% yesterday (3 March), according to MarketAxess.
Moss Creek doesn’t have any near-term maturities. But other small E&Ps like Bruin E&P Partners and Fieldwood Energy that have seen their debt trade down have nearer-term capital needs on the horizon.
Bruin’s USD 600m 8.875% senior unsecured notes due 2023 fell six points last week to trade at 55 from 61 on 20 February, according to MarketAxess. The notes are quoted in the low-to-mid 50s today, said a trader.
Fieldwood’s USD 1.14bn Libor+ 525bps first lien term loan due 2022 shed to the 77.5/80.167 context last week from the 83.6/85.6 context before the selloff, according to Markit. The loan was last quoted today in the 77.813/79.969 context. Quotes on the USD 518m L+ 725bps second lien term loan due 2023 fell eight points to the 50.5/54.5 context last week, and then gained slightly to 51.92/55.42, according to Markit.
For Moss Creek, looking ahead to this year the company guided for production growth of 5%-10%, the sources said. At the end of third quarter, Moss Creek produced 50-55 mboe/day.
Management also outlined USD 550m-USD 630m of capex for the year including drilling, completion and other expenditures for 2020, the sources said. At the midpoint, that would represent a 21% cut from the USD 750m in 2019 capex the company outlined at the time of its bond syndication last year.
Management expects to operate five rigs in 2020, but has the flexibility to cut the number to just 1.5 rigs, the sources said. The company will run 85 to 100 wells in 2020, one of the sources added.
“When I think about flexibility they have, operators need to be cognizant that they can’t drop the number of rigs down to maintenance levels without jeopardizing relationships with servicers. The sponsor wants them to grow and maintain that flexibility, so they have to operate three rigs at least,” one of the sources said.
Moss Creek is a subsidiary of Surge Energy US Holdings Company, which commenced operations in April 2015 and is ultimately owned by Shandong Xinchao. Surge Energy acquired the Moss Creek assets from Tall City Exploration and Plymouth Petroleum in November 2015.
Moss Creek did not respond to a request for comment.