Macro Tsimmis

intelligently hedged investment

BPZ Energy (BZP) update #14

Posted by intelledgement on Sun, 07 Sep 08

Good news and bad news on the energy spec play front this week.

The good news announced on Thursday is that the “major international bank” who have tentatively agreed (as announced last month) to extend a $200 million revolving credit facility to BPZ Resources (BZP) is Natixis, a major French bank, and their credit committee have approved the loan. BZP expect to close this $200 million tranche by the end of 2008.

The bad news is that amid the general economic chaos currently afflicting markets, the price of energy commodities is plunging. From $145/barrel in late June, the price of oil has melted down to $106 as of Friday. As the loan is backed by current oil reserves in the Corvina field, if the price continues to decline sharply, it could scotch the deal. Aside from the fact that credit is getting harder to obtain, the economics of the gas-to-power project and a lot of BZP’s projected development look a lot different with—say if the price declines another 25%—$80 oil as opposed to $145 oil.

Not to mention the company’s valuation: the stock closed at $16.25 Friday, down from $29.40 on 30 June.

We love the BZP story long term, but will be watching the macros closely here as it may be time to step aside.

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