Macro Tsimmis

intelligently hedged investment

Transmeridian (TMY) update #19

Posted by intelledgement on Fri, 09 May 08

Transmeridian, our withering Kazakhstani-focused E&P, filed their 1Q08 10-Q with the SEC today, and it included some interesting information.

In short, the company continues to produce less oil and lose money doing it. Production for the quarter came in at an average 2072 BBLS/day, as compared with an average of 3513 BBLS/day a year ago. Never-the-less, the losses were hardly any worse, amounting to $17.9MM this quarter as compared with $17.3MM a year ago. Indeed on an operating basis, the company virtually broke even, with a loss of only $0.2MM in 1Q08 as opposed to $6.6MM of red ink a year ago. The difference maker: proceeds of $72 per barrel in 2008 as compared with only $28 a year ago.

Unfortunately, it is hard to credit management’s claim—made just last month—“that the company can continue to generate sufficient cash flow to fund its ongoing operating costs, overhead and cash interest requirements” at this production level. The losses in 1Q08 were comprised mainly of $10.6MM in interest and $5.9MM in preferred stock dividends—which is to say, more interest. Heck, their total revenue in the quarter was only $15.3MM…even if that were pure profit, they would still be in the red.

What probably has to happen here is some sort of arrangement with the existing creditors that enables the company to obtain funding to increase production. A lot of TMY’s operating costs are fixed, and if, say, twice as much oil were flowing through the system, we should see black ink on an operating basis…which tactically would enable the company to pay some interest and strategically would make the South Alibek field more attractive to any prospective purchaser.

Of course, even if they obtain funding, there is no guarantee management can goose production up to 4000 BBLS/day. Their track record in managing the field is not great.

Hey, it’s a thin reed, been when one is drowning, anything vaguely reminiscent of a rope looks good.


Leave a Reply

Please log in using one of these methods to post your comment: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: