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The Indebted 5: Upstream Energy’s Most Leveraged Companies

PART:
1 2 3 4 5 6
Part 2
The Indebted 5: Upstream Energy’s Most Leveraged Companies PART 2 OF 6

Why Jones Energy Has the Highest Debt in the Upstream Industry

Jones Energy’s debt

As of June 30, Jones Energy’s (JONE) total debt stood at ~$728 million. With only ~$6 million in cash and cash equivalents, JONE’s net debt was ~$722 million at the end of 2Q17.

Why Jones Energy Has the Highest Debt in the Upstream Industry

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Jones Energy’s net debt-to-EBITDA

Net debt-to-EBITDA is a ratio representing a company’s leverage, which shows how many years it would take for a company to pay back its debt under the current situation of its operating earnings. As of 2Q17, JONE’s net debt-to-EBITDA stood at ~9.8x—the highest among the companies we selected in the first part of this series.

Even though Jones Energy’s leverage has fallen in the last couple of quarters, compared to its net debt-to-EBITDA historical average of ~7.3x, JONE’s current net debt-to-EBITDA is much higher.

What went wrong with Jones Energy’s debt situation?

At the end of 2014, Jones Energy’s net debt-to-EBITDA was at a comfortably low level of ~2.4x. However, from 4Q14 to 4Q16, Jones Energy’s net debt-to-EBITDA ratio has risen from ~2.4x to ~13.9x. This steep increase in the net debt-to-EBITDA ratio since 4Q14 could be due to the steep decline in JONE’s earnings.

Even though Jones Energy’s net debt fell from ~$846 million in 4Q14 to ~$689 million in 4Q16, its trailing-12-month EBITDA fell ~83% from ~$290 million to ~$50 million during the same period, keeping its net debt-to-EBITDA ratio elevated.

JONE’s net debt-to-EBITDA has fallen somewhat in the first two quarters of 2017, even as its net debt has slightly risen because of the bigger rise in its EBITDA in these two quarters.

Peers

JONE’s peer Chesapeake Energy (CHK) is also in a similar debt situation. CHK’s net debt-to-EBITDA has shot up from the low of ~1.1x in 4Q14 to ~5.5x in 2Q17, mainly due to the steep decline its earnings due to lower natural gas (UNG) prices. CHK’s trailing-12-month EBITDA has fallen ~72% from ~$6.5 billion to ~$1.8 billion during the same period. Chesapeake Energy (CHK) is at the tenth position among the highest debt-loaded companies we’re looking at.

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