Midstates sees 3.5x leverage ratio by end of year, ample liquidity

By Paul Deckelman

New York, April 8 - Midstates Petroleum Co., Inc. ended 2013 with a leverage ratio of net debt as a multiple of trailing 12-month adjusted EBITDA of 4.4 times. But its senior vice president and chief financial officer said Tuesday that the Houston-based energy exploration and production company expects adjusted EBTIDA to increase sufficiently this year to bring that debt figure down to the company's previously set target of about 3.5 times by the end of this year.

And CFO Nelson M. Haight told participants at the Independent Petroleum Association of America's annual OGIS New York Conference that thanks to a recently announced asset sale as well as some tinkering the company and its lenders did on its revolving credit facility, "we think that gives us enough liquidity to fund our planned capex through 2015."

Louisiana asset sale

Midstates said on March 11 that it would sell all of its ownership interest in developed and undeveloped acreage in the Pine Prairie field area in Evangeline Parish in central Louisiana to a private buyer whom it did not identify for a purchase price of $170 million, subject to customary purchase price adjustments, with the transaction expected to close in early May, subject to customary closing conditions. The company plans to use the expected net proceeds of around $155 million to pay down existing revolver debt.

It concurrently arranged for a $125 million temporary bridge facility, secured by Pine Prairie and the company's other Louisiana assets, but said that it does not intend to draw on that facility unless there is a significant delay in closing the asset sale.

Haight told the OGIS conference that "today, it looks like that sale, which is scheduled to close on May 1, is going to close on time. There's no indication that there's going to be any delay."

That backstop bridge facility will terminate upon the closing of the asset sale.

The CFO said that delivering financial stability "is what I think has been a challenge for the company over the last year or so," but he walked the conference participants through the company's liquidity projections in support of its declaration that any liquidity issues have been solved through at least the end of 2015, obviating the need for any further debt or equity capital raises in the near term.

According to the company's most recent 10-K filing with the Securities and Exchange Commission, as of the end of its 2013 fiscal year on Dec. 31, its total long-term debt stood at just over $1.7 billion, up substantially from $694 million at the end of 2012. The $694 million figure consisted of $94 million of borrowings under the revolver and $600 million of 10¾% senior notes due 2020 that the company, along with its co-issuing Midstates Petroleum Co. LLC subsidiary, had sold in a scheduled forward calendar transaction that priced at par on Sept. 13, 2012, after having been upsized from an original $550 million.

Bond sale increases debt

The debt increase in 2013 consisted primarily of $700 million of new 9¼% senior notes due 2021 that priced at par in a scheduled transaction last May 23. The net proceeds were used to fund the company's $620 million acquisition of producing properties and undeveloped acreage in the Anadarko Basin in Texas and Oklahoma from Panther Energy Co., LLC and its partners. The remaining proceeds were used to repay revolver debt and for general corporate purposes.

In addition to the bond sale, the company increased its revolver borrowings to $401 million at year's end, bringing total debt to $1.7 billion.

Midstates had 2013 year-end liquidity of $132 million, consisting of $33 million of cash and cash equivalents plus the remaining $99 million of borrowing availability under the revolver, which had an overall commitment size of $750 million and a year-end borrowing base of $500 million.

Earlier this month, the company disclosed in an SEC 8-K filing that it had amended its revolver agreement, including a $25 million reduction in the borrowing base to $475 million.

Haight said that with the roughly $155 million of net proceeds that the company expects to reap from the Pine Prairie asset sale being used to pay down the revolver debt, currently at $401 million, the pro forma outstanding balance on that facility should drop to $246 million, leaving $229 million of availability. Combined with the $33 million of cash and equivalents on hand, that would leave pro forma liquidity at $262 million.

He said that while the company exited the 2013 fourth quarter with about $120 million of adjusted EBITDA, for a full-year run rate of about $480 million, Midstates expects to raise adjusted EBITDA as it continues to expand its drilling operations in the most productive portions of its Mississippian Lime and Anadarko Basin properties in Texas and Oklahoma it acquired over the past two years, which it considers its core areas. Adjusted EBITDA for the full year should rise to around $500 million to $525 million.

At the same time, he said that the company's capital spending on such drilling and other capex costs should amount to about $525 million, "which is the mid-point of our guidance. It's a key initiative of the company to keep our cash spend on capex within the adjusted EBITDA number. So our goal is to make that neutral and cancel it out."

Assuming adjusted EBITDA essentially cancels out the capex costs and deducting $140 million of expected 2014 cash interest costs, Haight said that would leave the company with projected year-end liquidity of $100 million to $125 million.

"This is before any borrowing-base increases or any additional proceeds we might raise through any joint ventures or further asset sales. All of those would be incremental to this picture," the CFO concluded.

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.