Equity Analyst Jeffrey R. Connolly, CFA of Investment Research Firm Clarksons Platou Securities reiterated bneutral rating on Bill Barrett Corporation(NYSE:BBG) and reduced their price target on the stock from $4 to $3.
According to the report ”BBG continues to deliver on execution, driving improved capital efficiency in 2015. However, a weak commodity price environment and increasing leverage metrics present plenty of challenges for the company to overcome in our opinion. We remain on the sidelines, despite an incrementally positive announcement, and reduce our target price to $3 from $4.
Bill Barrett Corporation(NYSE:BBG) bills itself as an oil and natural gas exploration and development company headquartered in Denver, Colorado. Our assets are located solely in the resource-rich Rocky Mountain region with active exploration and development properties located throughout the area. Our largest development programs are located in Colorado and Utah. The Rocky Mountain region offers vast untapped resources where we explore and develop oil and natural gas with environmental stewardship and corporate responsibility. We are also committed to providing a safe, respectful and rewarding environment for our employees.
The report concluded that ”Borrowing Base Maintained While Asset Sales Bolster Liquidity: BBG’s lender group reaffirmed its borrowing base of $375.0 mm on its revolving credit facility due April 2020. In addition, the lender group replaced the total debt to trailing twelve month EBITDAX covenant with a covenant limiting the maximum senior secured debt to trailing twelve month EBITDAX ratio of 2.5x while adding an minimum of 2.5x TTM EBITDAX to interest expense. BBG’s revolving credit facility was undrawn as of September 28, 2015.
Moreover, BBG announced an agreement to sell certain non-core Uinta Basin properties for after-tax cash proceeds of ~$27.0 mm. The transaction is expected to close on or before November 30, 2015 with an effective date of September 1, 2015. The Uinta divestiture includes ~470 boe/d of production, 17,632 net acres, and ~11.0 mmboe of proved reserves.
Rating and Valuation: In our view, lower capital expenditures, increased production guidance, and enhanced liquidity are all positive. However, we maintain our Neutral Rating and lower our target price to $3 from $4 due to a weak outlook for commodity prices over the coming twelve months. Moreover, we see increasing leverage metrics as a challenge to developing the DJ Basin despite relaxed covenants on the credit facility.”
On September 28 BBG announced its semi-annual borrowing base review has been completed with the bank group reaffirming the $375 million borrowing base related to its revolving credit facility maturing in April 2020. The credit facility has $375 million of commitments and there are currently no borrowings under the credit facility.
As part of the redetermination process, the Company and its lender group agreed to amend the maintenance covenants in the revolving credit facility by replacing the leverage covenant limiting the maximum total debt to trailing twelve month EBITDAX1 ratio of 4.0x with a covenant limiting the maximum senior secured debt to trailing twelve month EBITDAX ratio of 2.5x through March 31, 2018, after which, the leverage covenant reverts to a maximum total debt to trailing twelve month EBITDAX of 4.0x, as of June 30, 2018. In addition, an interest coverage ratio requirement was included, pursuant to which the ratio of EBITDAX to interest expense may not be less than 2.5 to 1.0 for each quarter through March 31, 2018.
The Company also announced that it has entered into a definitive agreement to sell certain non-core Uinta Basin properties for after-tax cash proceeds of approximately $27 million. The transaction is expected to close on or before November 30, 2015, with an effective date of September 1, 2015, and is subject to customary closing conditions and post-closing purchase price adjustments.