Midstates Petroleum lacks cash, credit for payments in next 12 months

By Caroline Salls

Pittsburgh, March 16 – Midstates Petroleum Co., Inc. said its forecasted cash and available credit capacity are not expected to be enough to meet its commitments as they come due over the next 12 months, and the company will not be able to remain in compliance with debt covenants unless it increases its liquidity, according to a 10-K filed Monday with the Securities and Exchange Commission.

Midstates said its liquidity outlook changed since the third quarter of 2014 as a result of the substantial decrease in commodity prices.

The company said this resulted in lower operating cash flows than expected and, if commodity prices remain low compared to recent historical prices, will result in future significantly lower levels of operating cash flows as its current hedging contracts expire during 2015.

As of Dec. 31, Midstates had roughly $11 million in available cash and $90 million in availability under its senior reserve-based revolving credit facility. If there is a downward revision in estimates of proved reserves, the borrowing base for the company’s revolving credit facility may be reduced, resulting in a reduction in available liquidity.

Payment obligations

Payments due on contractual obligations during the next 12 months were greater than $150 million as of Dec. 31, the 10-K said, including about $130 million of interest payments on Midstates’ senior notes and other operating expenses.

Midstates said it will be required to pay $32 million in interest on its 2020 senior notes on each of April 1 and Oct. 1, 2015 and $32 million in interest on its 2021 senior notes on each of June 1 and Dec. 1, 2015.

The company said it likely will need to complete transactions, including management of its debt capital structure and potential asset sales, to have sufficient liquidity to satisfy these obligations in the long-term.

According to the filing, the uncertainty associated with the company’s ability to meet its commitments as they come due or to repay outstanding debt raises substantial doubt about its ability to continue as a going concern.

Covenant issues

In addition, Midstates said the terms of its credit facility and the indenture governing its senior notes require that some or all of the proceeds from specified assets sales be used to permanently reduce outstanding debt, which would substantially reduce the amount of proceeds the company retains.

Covenants in these debt instruments also impose limitations on the amount and type of additional debt the company can incur, which may significantly reduce its ability to obtain liquidity. Midstates’ ability to refinance any existing debt may also be adversely impacted by the current conditions in the energy industry and its financial condition, according to the 10-K.

As of Dec. 31, the company’s ratio of net consolidated debt to EBITDA was 3.7 to 1.0, and its ratio of current assets to current liabilities was 1.1 to 1.0.

If liquidity concerns are not addressed in the near term, Midstates said it may breach the leverage covenant of its credit facility in the third quarter of 2015, which currently requires a maximum ratio of net consolidated debt to EBITDA of 4.0 to 1.0 beginning with the quarter ended March 31.

Liquidity management measures

Midstates said it is actively managing its debt capital structure, selling additional assets, minimizing its capital expenditures, obtaining waivers or amendments from lenders, effectively managing its working capital and improving its cash flows from operations.

The company said it obtained a waiver to its credit facility that waives any default resulting from an auditors’ opinion including a going-concern qualification in its 2014 financial statements.

As its takes actions to increase liquidity, Midstates said it may need to negotiate additional waivers or amendments to its credit facility or indentures to facilitate those actions.

Midstates is a Tulsa-based oil and gas company.

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