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answered Apr 06, 2019 09:11 PM by
Jin Won Choi gravatar image Administrator

Hi Wes,

Let me add to what I had said on my blog post that dohertyc kindly mentioned. First of all, let's be honest and say that transactions like this really suck. Existing shareholders will only own 16.5% of the restructured company, which means that stock prices would have rise 6x from before just to recoup our losses.

That said, I think things could have been far worse. The bondholders could have demanded a larger share of the company, effectively wiping out the existing shareholders. I believe they didn't do that in part because they believe in the future of BXE.

You can't really fault the company from an operational point of view. They've brought costs down, and the wells they've drilled are producing lots of gas. But operational excellence couldn't offset the problem of record breaking low gas prices in Alberta. Many people believe that gas prices will eventually recover once LNG shipments begin, but that's still many years away. Sufficiently high oil prices could have saved BXE as well, but that didn't pan out either.

So what do we do now? I think it's too late to sell the stock based on the restructuring news. Investors already knew restructuring was inevitable some time before it was announced, so stock prices had baked that in for months. Now that the plan has been announced, debt maturities have been pushed to 2023, giving the company 4 years to try to climb out of the hole.

If gas prices in Alberta recover meaningfully by 2023, BXE will climb out of the hole and quite possibly see its stock prices rise significantly from here. But if gas prices don't recover, then it's probably headed for bankruptcy. Given that, I think it's fair to see this company as a kind of a lottery now. The expected payback from the lottery might be positive, but I wouldn't keep too much money in the stock given the huge risks involved.

Hope that helps,


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