Comparing the debt positions of HES, APA, DVN, and MRO
Net debt to EBITDA (earnings before interest, tax, depreciation, and amortization) measures the number of years it would take for a company to repay its debts if net debt and EBITDA remain constant. Net debt is a company’s total debt minus cash and cash equivalents.
Hess has the lowest net-debt-to-EBITDA ratio
Hess’s 4Q15 net debt to EBITDA was 1.65x compared to 0.58x in 4Q14, the lowest among the peer group we have been discussing. While there is little change in its net debt levels compared to 4Q14, its adjusted trailing-12-month EBITDA in 4Q15 was ~54% lower than 4Q14 levels. This explains the higher ratio versus 4Q14.
APA, DVN, and MRO’s net-debt-to-EBITDA ratios were over 2x
APA’s 4Q15 net debt to EBITDA was ~2.4x compared to ~1.5x in 4Q14. Net debt declined by 30% compared to 4Q14. However, its adjusted trailing-12-month EBITDA fell by 78% in 4Q15 compared to 4Q14, which explains the higher ratio versus 4Q14. APA’s lower debt level and HES’s flat debt level also explain why they have performed better in the stock market.
DVN’s 4Q15 net debt to EBITDA was ~2.6x compared to ~1.4x in 4Q14 while its 4Q15 net debt increased by 10% compared to 4Q14. Its adjusted trailing-12-month EBITDA fell by 43%, which explains the higher ratio versus 4Q14.
On the other hand, MRO reported the highest 4Q15 net debt to EBITDA ratio of 2.7x among its peers compared to 0.98x in 4Q14. Its 4Q15 net debt increased by ~53% compared to 4Q14 while its adjusted trailing-12-month EBITDA fell by ~48%, which explains the higher ratio versus 4Q14.
DVN’s and MRO’s increasing debt also explain their worse performance in the stock market. MRO and DVN recently announced stock offerings to boost liquidity amid lower prices. Other upstream companies to have done the same include Newfield Exploration (NFX) and Oasis Petroleum (OAS). All these companies make up 6% of the SPDR S&P Oil & Gas Exploration & Production ETF (XOP).