Tuesday, December 4, 2012

GMX Resources Lowers Production Guidance for Q4 2012 ($GMXR)

GMX just posted slides for a new presentation in the investor relations area of its website. These slides say,

4Q12 production guidance 60,000 BO
Yet just over three weeks ago, the company promised,
Bakken net crude oil guidance for the fourth quarter 2012 is expected to be 75,000 Bbls
What happened?! Just an unremarked upon 20 percent cut to production guidance, delivered 2/3 of the way through the quarter! Fortunately, this is why we created the GMX Resources "Chart of Truth".

If you were making an honest attempt to predict something (oil production, unemployment numbers), sometimes your predictions would be too high and sometimes they would be too low. When they are always biased in one direction, it's a sign that something's wrong - like trying to let people down gradually.

The 60,000 bbls means under $5 million in revenue. The cut in guidance is about a million in lost revenue. Also, the consent fee for the secured notes is another unexpected hit of about a million dollars. This is for a company with over $10 million in quarterly interest cost, and over $5 million in SG&A cost.

They also said that they will "fund remaining 2013 CAPEX needs through a variety of options".

My calculations show that they will end the year with an grim cash/working capital levels despite their recent asset sale. Net current assets were negative $22 million at the end of Q3, not counting the current maturities which are being extended with a new loan. Operations and interest will probably burn another $10-15 million in the fourth quarter. So the $67 million in asset sale proceeds would only bring working capital up to about $30 million, minus expenditures for wells drilled in the fourth quarter.

Looking at the burn rate and capex budget, I wouldn't be surprised if they are almost out of working capital by the end of the first quarter. What will they do at that point? They can't borrow unsecured (bond yields 40%), they may not be able to borrow any more secured, I doubt anyone would actually pay cash for equity (not with preferred trading ~50 cents). No wonder they are vague about the "options".

The problem is that the well results still aren't good. The Akovenko 24-34-2H well has been on production almost a month but they have no update besides the already disclosed initial production rate. The Basaraba 24-35-1H has been updated with 30, 60, and 90 day BOE rates that are unimpressive.

Here are the dogs that aren't barking in the presentation: reason for the guidance cut, plausible cash flow projections, plausible capex funding source for 2013, plausible models showing that the wells they are drilling are profitable. These are things I would have in my oil company presentation.


carpet cleaning denver co said...

Glad I am short. Nice call on GMXR.

CP said...

Looks like the market took notice this time?

The 2013 capex (and operational!) funding is a serious question.

PDX said...

There cash position is strong with the capital infusion from Blackstone who stated they will give more capital as needed they also announced a 3,000 BOEPD oil well, which is amazing, oil at $89, it goes higher!

CP said...


Their cash position is actually not that strong if you do the math.

We've written extensively on how meaningless initial production numbers are - especially "oil equivalent" numbers.