Wednesday, November 14, 2012

More GMX Resources Thoughts ($GMXR)

As I mentioned in my previous post, GMXR oil production has been a continual disappointment. Q1 production was supposed to be 52,000 bbl, but ended up 31,000. Then, Q2 was supposed to be 83,000 but ended up being 64,000. Third quarter was supposed to be 64,000 but ended up being 53,000.

Now Q4 is supposed to be 75,000 bbl - but we've been through this several times now. And even if oil production is 75,000 bbl for the quarter, revenue is only about $6 million, while their quarterly interest expense is now over $10 million and rising. So they'll continue burning cash operationally EVEN IF they make their guidance. [Interest expense is rising due to the pay-in-kind (interest accrual) feature on the notes. Just the refinancing of the $27mm in 5% notes is going to add $675k in quarterly interest expense if they PIK them, plus several million in one time financing fees.]

You know how many barrels of oil you need to sell to make $10 million a quarter to cover interest? Over 100,000 bbl per quarter!

It seems clear that the company will keep burning cash not counting the capex budget! 

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