Cardboard Posted March 17, 2016 Author Share Posted March 17, 2016 As oil goes back up and Western Canadian Select and as more transactions get made, the optionality in Twin Butte continues to grow. We are also talking about very near term catalysts or between now and April 30. Another transaction was quietly announced this morning by Surge Energy Inc. which disposed of 700 boe/d of non-core production or its Sunset property in Northern Alberta for $28 million. That is $40,000 per boe/d. Once again, Twin Butte bank debt (which continues to decline) of $207 million and its convertible at par of $85 million, represents $292 million of enterprise value before anything should be given to shareholders. That is only $18,000 boe/d. It is very fair to say that heavy and medium gravity oil is worth less than light but, medium is certainly worth more than Western Canadian Select. Any oil is also worth a lot more than natural gas which is what comes in large percentage with the light oil being bought in all these transactions. Cardboard Link to comment Share on other sites More sharing options...
Cardboard Posted March 22, 2016 Author Share Posted March 22, 2016 Results due tonight. Hopefully we will get an update about the strategic review process. Any positive on debt renegotiation with bank, equity issuance or some form of capital injection and the convertible could likely double overnight. Place your bets! Cardboard Link to comment Share on other sites More sharing options...
influx Posted March 23, 2016 Share Posted March 23, 2016 Results due tonight. Hopefully we will get an update about the strategic review process. Any positive on debt renegotiation with bank, equity issuance or some form of capital injection and the convertible could likely double overnight. Place your bets! Cardboard ... the Company believes that Twin Butte's inventory has the potential to deliver economic returns at oil prices over $40 US WTI per barrel which are equivalent or better than most, if not all, oil resource plays in Western Canada. ... Twin Butte continues to work cooperatively and proactively with our lending syndicate to ensure adequate liquidity is maintained through the previously announced and ongoing strategic alternatives process. The Company is pleased with the interest in the process to date and will disclose specific developments when the Board of Directors has approved a specific transaction or otherwise determined that disclosure is necessary or required. ... Operating netback (Funds flow, Capital expenditures, Net debt, Field netback and Operating netback are non-GAAP measures) for 2015: 32.94 ... Due to the sharp drop in commodity prices through the year and the Company's focus on decreasing debt and managing its liquidity, Twin Butte, reduced capital, reduced salaries, and first reduced then suspended the monthly dividend. These were all difficult but necessary decisions. ... Estimated Net Asset Value $ per Share – Fully Diluted at 10% discount 0.98 ... Outlook Twin Butte has continued to successfully transition to a higher value, more predictable production base. With adequate liquidity, a large portion of Twin Butte's undeveloped asset base has the potential to be economically developed at WTI prices above $40 US per barrel. With the current low price environment and repayment of the Company's $85 million non-revolving credit facility required by April 30, 2016, the Company is currently operating within a $17 million capital budget for 2016 (under $4.5 million in Q1) which currently includes the drilling of only one well. As such production is expected to continue to decline throughout the year exiting in the 10,000 boe/d range. Within the context of the ongoing strategic alternatives process, current low oil price environment and the April 30, 2016 debt repayment milestone, there is uncertainty surrounding the Company's ability to continue as a going concern. While the Company is in discussions with its lenders, failure to repay the non-revolving facility when due (unless otherwise extended) will constitute an event of default and entitle the syndicate to exercise its remedies under the credit facility, including acceleration of the credit facility and realization over the assets of the Company. The Management and Board of Directors remain focused on reaching a fair solution to the current liquidity challenges for all stakeholders. In these challenging times we have had to reduce staff counts and decrease compensation for everyone, while improving efficiencies as the Company adapts to this lower for longer commodity price environment. On behalf of the directors and management of Twin Butte, I would like to thank all our employees and field contractors for their efforts, insights and results. Link to comment Share on other sites More sharing options...
Cardboard Posted March 23, 2016 Author Share Posted March 23, 2016 What I posted on Stockhouse last night: "They seem to be all in for a sale... Either that or they are praying for oil to go up and fast and this could be an indication: "..nonrevolving facility when due (unless otherwise extended)." The extension wording is new in their disclosure. Other than that there is no discussion about new hedging with higher oil, equity issuance on higher investor appetite, financing from an angel investor, small asset sale, nothing. It could be a good sign since none of these options is seen favorably by an acquirer. On the other hand, they are not negotiating from a position of strength by not talking about using these tools." At least, we now have numbers around current production, decline rate, reserves and breakeven point. I think it is reasonable to assume that the converts at current price would not be seeing a loss upon a sale. I think it is bankruptcy safe too as this process takes a bit of time and oil fundamentals are improving. The company would need a bid of $225 million which based on all the recent transactions is a bargain. It is also fair to say that the common will not receive a penny unless the converts are offered at a minimum 60 cents on the dollar. So that is a bid of $255 million. Once again seems like a low bar. For the common to get what it is trading at, you need a bid of at least $300 million. That is also assuming that the converts would only receive 60 cents on the dollar which may not get accepted as LRE.DB received 75 cents. That is not really high based on Q1 production of 14,000 boe/d or $21,500 per boe/d, however it goes up to $30,000 per boe/d as we look at their 2016 exit rate guidance. Based on 2P reserves seems fair. So the common is in trouble as we could have imagined as the converts traded as low as 8 cents on the dollar in February. The converts on the other hand, appear safe from current trading level and would be a 3 bagger for the common to get anything. While I would like the common to go higher as it could offer more alternatives for the company to solve its liquidity issues, it appears unlikely at least for this morning. We would need oil to go a fair bit higher or like $50 and quickly. Regarding timing, the non-revolver is still due on April 30 and they have been exploring strategic alternatives since December 9 or 3 1/2 months. They say that they have interest for the assets but, that is meaningless since we don't know what prices are being offered if any. They are definitely playing with fire based on what I wrote above on Stockhouse unless they have a serious offer on the table. Cardboard Link to comment Share on other sites More sharing options...
Packer16 Posted March 23, 2016 Share Posted March 23, 2016 Based upon the reserves values, it appears the sub debt is trading at the YE PDP reserve value (18% of par). Packer Link to comment Share on other sites More sharing options...
Cardboard Posted March 23, 2016 Author Share Posted March 23, 2016 And you do realize that Gear Energy equity would be wiped out under such trading valuation and that it would only pay the credit facility and about half of the new debentures? Very similar businesses by the way. Cardboard Link to comment Share on other sites More sharing options...
LesPaul Posted March 23, 2016 Share Posted March 23, 2016 I certainly understand DB holders taking chips off of the table after the latest news release - but realistically, barring an even bigger swing up in oil prices, wasn't this always going to be a buy-out or bankruptcy scenario? I'm in the DBs. At 15-16 cents + bank debt, are we not as close as it gets to a 'heads I win, tails I don't lose much' call? Edited: Sentence structure & clarity. Link to comment Share on other sites More sharing options...
Packer16 Posted March 23, 2016 Share Posted March 23, 2016 The difference I see between Twin Butte and Gear is a Gear is a going concern at this point & Twin Butte is in distress. Also, Gear's PDP value is $0.46 value of the equity and TBE.DB's PDP is $0.18. Gear's P1 value is $0.88 while TBE.DB's value is par. So you do have more upside with TBE.DB but you also have IMO more risk. TBE.DB's security is a fulcrum security whose value is more influenced by short-term fluctuations in the oil price and buyer's willingness to pay a price today versus wait. The biggest risk I see hear is bidders waiting until the bank takes over TBE and buying the asset from them. Unless I am missing something, do the DB holders have a strong voice/investor that would prevent the bank's from foreclosing and selling the asset free and clear? Packer Link to comment Share on other sites More sharing options...
Cardboard Posted March 23, 2016 Author Share Posted March 23, 2016 A partial sale, equity raise, an offer to convertible holders to convert into shares could make it less binary than what you are proposing. What is surprising is that people are surprised by what is in the latest results. Anyone who has followed the company could have pretty much forecasted these numbers. The "going concern" mention was also to be expected with $85 million due on April 30 or a current liability and no immediate cash to pay for it. What could be surprising is that nothing firm has been done so far. Management seems to be entertaining no other option than a buyout and we are about 30 days away from the deadline. You have massive panic selling in the debentures basically saying that the assets cannot be sold for the bank debt and you have the equity still trading for close to $40 million! Cardboard Link to comment Share on other sites More sharing options...
Cardboard Posted March 23, 2016 Author Share Posted March 23, 2016 Maybe that we are using different numbers or not the ones discounted at 10% as typical: Gear's Proved Developed Producing reserve value at a 10% discount is $62.404 million. That covers the bank debt and about half the convertible. Twin Butte's PDP is $220.787 million or covering the bank debt and roughly 18% of the convertible at par as you mentioned previously. Gear's P1 or Total Proved is $98.719 M which leaves $0.33 per share after paying all debts at par. Twin Butte's P1 is $312.102 M which leaves $0.06 per share after paying all debts at par. There is no doubt that Twin Butte is distressed. While I don't know who is going to defend the converts (the CFO owns some and management a lot of stock), if management wants to keep the company alive and keep their good paying jobs, they could at least make an offer to the converts to convert into shares. No guarantee that it will get approved but, that could be worth trying. If you do that, then the proforma debt numbers look awfully similar to Gear: coverage ratios vs production, etc. That is also $5.3 million of interest a year that can go toward repaying the bank debt and make them more comfortable. Will they look at that? I don't know. They seem hell bent on selling the company and since none of the other options that I have mentioned appear in their disclosure then they must be pretty confident. Regarding bankruptcy, it is an auction or just like now. If there is only one bidder then that is a problem since they can offer below the bank debt and walk away with it. However, if you are the principal banker on that credit facility and also one of two advisors on the strategic process (National Bank), you have inside knowledge as to what the bids look like. You would be foolish to put the company into bankruptcy if you know that you won't get your money back and that other alternatives could be used to remove some of the distress and obtain a better price or similar to trading valuations out there. No premium. Cardboard Link to comment Share on other sites More sharing options...
Packer16 Posted March 23, 2016 Share Posted March 23, 2016 My Gear numbers are based upon Gear's NAV. If we do the same for Twin Butte, you get P2 NAV of $0.98 and P1 NAV of $0.21 for the common and PDP NAV of $0.83 for the DBs. My concern is not as much the value but is there someone holding the same security that will defend the position. In Gear common, I have this confidence not so much for the Twin Butte DBs. Packer Link to comment Share on other sites More sharing options...
Cardboard Posted March 23, 2016 Author Share Posted March 23, 2016 "My concern is not as much the value but is there someone holding the same security that will defend the position." I suspect that if a crazy low offer comes up for the convertible or a low percentage to par that some institution will come out publicly as was the case with Long Run Exploration. Until something happens: sale or bankruptcy, I don't expect to hear from these guys publicly. However, they are likely talking with management and unless they hold 10% of the convertible then we don't know who they are. Lock-up agreements with larger holders are typical before a sale is announced. Now regarding your statement, if you believe at all in the value being present and that stocks out there including GXE trade at not outlandish valuations relative to reserves and production then, there should be some interest for Twin Butte assets at prices that reflect that value. In other words, if somebody offers only to repay the bank debt or a stalking type bid going into bankruptcy, then someone else will show up with a higher offer since the gap to value will be too high. I have also looked at many E&P companies that entered that process and none of them looked like TBE. Some had negative netbacks and most had an insane amount of debt relative to production and reserves which made them expensive in the first place for any bidder. That is why I am not sure what game management is playing. A sale is fine with me but, the process here looks highly unusual especially considering that the former CEO holds a lot of shares and that would mean a big loss upon a sale at this time or a likely wipeout in bankruptcy. Other options should be considered. Cardboard Link to comment Share on other sites More sharing options...
SafetyinNumbers Posted March 23, 2016 Share Posted March 23, 2016 Perhaps ironically, this debenture has more protection for owners than most out there as there is no forced early conversion to equity like others we have seen out there like AXL.DB.B (which also looks exceptionally cheap as an aside). I imagine the syndicate's priority is to sell the company and they may not be open to discussing other options yet as they potentially get oil and gas loans off their books and earn a fee on the sale. The equity markets have also seemed to be open to those with good balance sheets so it would seem risky to wait through a bankruptcy process at a time when oil prices might lift (and the assets get more expensive) or when you may not have certainty on financing. Link to comment Share on other sites More sharing options...
Cardboard Posted March 28, 2016 Author Share Posted March 28, 2016 http://www.stockwatch.com/News/Item.aspx?bid=Z-C%3aGXE-2357386&symbol=GXE®ion=C This is positive related news and confirms the value in Twin Butte or what management has said that the assets could be profitably developed above $40 U.S. WTI. The economics are even better at Provost since it is lighter oil than around Lloydminster where both GXE and TBE operate. Cardboard Link to comment Share on other sites More sharing options...
sculpin Posted May 1, 2016 Share Posted May 1, 2016 Mentioned TBE.DB in multibagger spec ideas.... http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/multibagger-speculative-ideas/msg263559/#msg263559 Anyone want to revive this thread? TWIN BUTTE ENERGY LTD. 6.25% DEB (TSX - TBE.DB - $16.00) Maturity December 2018. Current yield 39%. Potential 6 bagger to face value. In discussions with bank to extend revolving credit facility which came due on 30 April. Peters & Co been marketing them since December. 14,000 bbls/d heavy & medium oil. Highly leveraged to oil price. Cardboard started a discussion on them in January. Link here... http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/tbe-db-twin-butte-convertible-debentures/ Link to comment Share on other sites More sharing options...
bbarberayr Posted May 1, 2016 Share Posted May 1, 2016 Corporate Update today: http://finance.yahoo.com/news/twin-butte-provides-corporate-161400597.html Link to comment Share on other sites More sharing options...
LesPaul Posted May 2, 2016 Share Posted May 2, 2016 Probably a dumb question...but here goes. Since TBE is *technically* in default, as in, they literally have not given the lending syndicate $85m by April 30th, could they *technically* force the debentures to convert? I ask because of this from the 2015 Annual Information Form: "Twin Butte's near term focus is to complete a restructuring transaction pursuant to its strategic alternatives review process announced on December 9, 2015 which will generate sufficient proceeds to satisfy the $85 million non-revolving portion of the Credit Facility which is due on April 30, 2016. Failure to repay the non-revolving facility will constitute an event of default under the Credit Facility and entitle the syndicate to exercise its remedies under the Credit Facility, including acceleration of the Credit Facility and realization over the assets of the Corporation. The acceleration of the Corporation's indebtedness under the Credit Facility may permit acceleration of indebtedness under other agreements that contain cross default or cross-acceleration provisions, including the Convertible Debentures. " Or is it just coincidence in this case that the non-revolving facility and the debentures are both $85m? Link to comment Share on other sites More sharing options...
Cardboard Posted May 2, 2016 Author Share Posted May 2, 2016 They are not in default since the banks have given them an informal extension but, since it is not a formal extension with a new date and terms, they are in default not having made that payment on or before April 30. It is probably one of the worst written press release that I have ever seen. This deadline was known for months. It is almost like something is imminent and got missed by a day or so, so they did not work on a formal extension. Or the banks want to keep a lot of pressure on by not giving a formal extension and are satisfied by whatever transaction Twin Butte is negotiating. If not, the banks should have called the default. Regarding the convertibles, if they are in default on the credit facility, then they are in default on all other debts. It is standard. All it means is that they would also owe immediately $85 million and all accrued interest to the convertible holders. There is no forced conversion provision. I do believe that the size of the non-revolving facility being the same as the convertible at par is just a coincidence. When the banks negotiated with them, they decided that they wanted $85 million repaid on April 30. It could have been $90 or $80 million. They elected that amount based on their needs and without regards to other lower ranked debt in the capital structure. Cardboard Link to comment Share on other sites More sharing options...
LesPaul Posted May 2, 2016 Share Posted May 2, 2016 Well...there you go: Twin Butte announces extension to non-revolving credit facility CALGARY, May 2, 2016 /CNW/ - (TSX: TBE) – Twin Butte Energy Ltd. ("Twin Butte" or the "Company") today announced that its bank syndicate has agreed to extend the maturity date of Twin Butte's $85 million non-revolving credit facility from April 30, 2016 to May 31, 2016, to enable the Company to continue with its strategic alternatives process. As announced on December 9, 2015, Twin Butte has engaged Peters & Co. Limited and National Bank Financial Inc. as its financial advisors to advise the Company in connection with a comprehensive review and analysis of its strategic alternatives process. Strategic alternatives may include, but are not limited to, a debt restructuring, a sale of all or a material portion of the assets of Twin Butte, either in one transaction or in a series of transactions, the outright sale of the Company, or merger or other transaction involving Twin Butte and a third party, and/or alternative financing initiatives. The Company cautions that there are no assurances or guarantees that the process will result in a transaction or, if a transaction is undertaken, the terms or timing of such a transaction. Within the context of the ongoing strategic alternatives process, the current low oil price environment and the May 31, 2016 debt repayment milestone, there is uncertainty surrounding the Company's ability to continue as a going concern. While the Company is in discussions with its lenders, failure to repay the non-revolving facility when due (unless otherwise extended) will constitute an event of default and entitle the syndicate to exercise its remedies under the credit facility, including acceleration of the credit facility and realization over the assets of the Company. Link to comment Share on other sites More sharing options...
LesPaul Posted May 5, 2016 Share Posted May 5, 2016 Jumped back in here. Why bother kicking the can down the road by 30 days if there isn't at least one solution on the table? Link to comment Share on other sites More sharing options...
LesPaul Posted May 13, 2016 Share Posted May 13, 2016 Big drop in the debentures today. Saw similar movements after the last report but I don't think too much has really changed here. $209m in bank debt and the debentures at $8.5m. I would think the provost asset by itself would cover this and then some...but what would be leftover probably isn't worth so much. I'd be interested to hear if anyone else is still in this name and what their thoughts are. Link to comment Share on other sites More sharing options...
Packer16 Posted May 13, 2016 Share Posted May 13, 2016 I think the issue here is the converts are the fulcrum security or maybe a zero. The PDP value is $221m so it implies a convert value of $12m. Now given that Twin Butte is a forced seller the $12m margin of safety (5% of PDP value) is quite tight. If they are not in a forced sale position, then the converts have more value. The real question is what price do you think Twin Butte will get for its merchandise, distressed or normalized. Distressed it is a zero normalized a really nice return thus these are the fulcrum security. Packer Link to comment Share on other sites More sharing options...
LesPaul Posted May 20, 2016 Share Posted May 20, 2016 Added more at this range. Some friends wanted to go to the casino... I said, "Hey, if you guys want to gamble..." I confess to being hard-headed. Link to comment Share on other sites More sharing options...
netnet Posted May 20, 2016 Share Posted May 20, 2016 Added more at this range. Some friends wanted to go to the casino... I said, "Hey, if you guys want to gamble..." I confess to being hard-headed. Who's your broker, I can't get a quote (or a fill) from mine. Link to comment Share on other sites More sharing options...
LesPaul Posted May 20, 2016 Share Posted May 20, 2016 RBC Direct Investing. Off-topic: Not a fan of the new 'pretty' interface that they've slapped on top of the old one; encountered some annoying glitches. It's intimidating to see the market telling you that you continue to be wrong here but, these same buyers/sellers seemed far more confident a month ago before the extension... and before $48 WTI...and before Husky sold. Link to comment Share on other sites More sharing options...
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