Possible bankruptcy?
You only think bankruptcy is 'possible'?
The bonds are only trading around 30, and they missed their first interest payment and it looks like they will not be able to pay the next interest payment.
Imagine you bought some of the bonds last year near par, would you be willing to wait around for months in the hope that maybe oil prices goes back up OR would you want to take over the company to protect your interest, and get rid of the common shares interest now? The company would be better off filing for Chapter 11 now, while they are in the best possible situation in order to have the best possible hope of having the common shares retain some interest in a reorganized company. The longer this goes on for, the worse it will be for shareholders, and even bondholders. If this goes beyond the end of this year with oil prices this low, bondholders may end up with land that is not able to produce any oil.
Last year the company was putting out projections that daily production was going to hit 3,000 BOED before the end of the year, 2014. Then it looks like the best it was going to be was 2,700 to 2,800 BOED. At the end of 2014 they were producing only 2,588 BOED. With the shale production, we can expect declines of about 0.2% per day according to one of the seeking alpha articles on CLR or WLL.If that is correct then daily production is about 2,245 BOED as of March 13, 2015.
If someone really wanted to buy in with the hope or expectation that oil prices will go back up, the bonds are a 'better' (NOT GOOD) deal than the common stock, but I would avoid both. Why take such a risk when there is no telling how long oil prices will be down like this?
Louis J. Desy Jr.
