The ratio of debt, revenue, and reserves. New Century's website notes production of 750 bopd and 1.9 Mcfpd which generates daily gross revenue of $117,150. 750 bopd x $125 = $93,750, and, 1,950mmcfpd x $12 = $23,400 for a total of gross revenue, prior to royalities and taxes of $117,150/ day.
As of March 31, 2008, New Century still needs to refinance two caches of debt, one at $6.35 million, and one at $12 million, at total of $18.35 million in debt due as of March 2008. Hopefully, a smaller amount as of today. The total is$71 million in debt, of which $18.5 million still needs to be refinanced; that hasn't changed.
NCEY has gross revenue of approximately $117,150 / day, by comparison the $18.35 million equates to about 157 days of gross revenue. Based on NCEY's production revenue the amount of debt is fairly workable.
NCEY looks to on par to generate about 10 million in revenue per quarter or $40 million in revenue annually. The ratio of debt to annual revenue is 1.75, which is high, but not new news. Without the debt, using a valuation multiple of 3.5 times revenue, would generate a market capitalization of $140 million. Write the value of the debt off the top line and you still come up with a market cap of $70 million going on a forward valuation based on gross annual revenue of $40 million.
Use $35/boe to value 2.1 million boe in reserves and you come up with a net assest value of $73 million. A ratio of 1 to 1 debt verse NAV (@ $35/ boe NAV) should allow NCEY to refinance the debt, or at least demonstrate the current value. It's in everyone's best interest to allow NCEY to buy time on the refinancingt and continue producing oil and gas which allows them to eventually repay the loan. 2.1 million boe x $125 / boe will generate approximately $252 million in gross revenue or 6.3 years of production at $40 million annually. If you compare the future value of NCEY's reserves, the $71 million in debt doesn't look as forebidding.
Both the price of oil & gas and production have increased significantly since the original loan. significantly increasing revenue has allowed NCEY to show progress in building a company that is able to pay off the debt. NCEy's buysiness fundamentals are improving, with each day NCEY continues to produce oil and gas, and add to existing revenue with the drill bit.
The production profile (750 bopd /1.95 million cfpd) on this micro-cap demonstrates that NCEY is a highly qualified oil and gas operator. Obviously, without the debt, NCEY's share price would be many, many multiples higher.
There is risk in the oil and gas business in discovering and producing oil and gas, and managing the operations cost effectively. NCEY has IMO proved it can produce oil and gas. NCEY now needs to prove (to the market) that they can manage the financial side of the business.
It's a bad time for small buisness to be seeking financing on anything close to favorable terms. I don't see any win-win solutions other than for NCEY to continue to generate cash flow from operations and pay down the debt. NCEY's story hasn't changed - big oil and gas production, and reserves verse big debt.
All for FWIW, on a couple of "back of the envelope" valuation models, (ie. gross revenue and NAV on reserves)
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