These Upstream Companies Have the Lowest 12-Month Leverage


Mar. 14 2018, Updated 8:21 a.m. ET

The five upstream with the lowest leverage

In this part, we’ll look at the five upstream companies with the lowest leverage based on asset-to-equity ratios. A high asset-to-equity ratio indicates that debt is financing a larger portion of a company’s assets. The industry average ratio is 2.2x. The five upstream companies with the lowest LTM (last-12-month) leverage are Ring Energy (REI), Centennial Resource Development (CDEV), Sandridge Energy (SD), Jagged Peak Energy (JAG), and Callon Petroleum.

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Ring Energy

As of 3Q17, REI had an LTM leverage ratio of ~1.1x. The company has no long-term liabilities, meaning its assets are mainly financed by equity. Some investors may consider a low debt-to-equity ratio a sign that a company is not taking advantage of the potential profits financial leverage may bring.

Centennial Resource Development

As of 4Q17, CDEV had an LTM leverage ratio of 1.2x. CDEV’s total debt outstanding as of December 31, 2017, was $400 million. During 4Q17, Centennial extended its debt maturities by issuing $400 million in 5.4% senior notes due in 2026, resulting in net proceeds of ~$391 million. The company used these proceeds to repay borrowings under its credit facility and capital expenditure.

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Sandridge Energy

As of 4Q17, SD had an LTM leverage ratio of ~1.32x. SD’s total debt outstanding as of December 31, 2017, was $37.5 million. In the company’s 4Q17 earnings release, management noted that it had no funds drawn under its credit facility and intended to repay its $38 million debt in full. Following this repayment, SD would have no outstanding long-term debt. SD exited from bankruptcy in 2016 with ~$3.7 billion of its second lien and unsecured debt converted into equity.

Jagged Peak Energy

As of 3Q17, JAG had an LTM leverage ratio of ~1.34x. Its long-term debt as of September 30, 2017, was $35 million. As of November 3, 2017, JAG had $80 million in outstanding borrowing against its credit facility and $345 million in undrawn capacity. JAG aims to maintain a net-debt-to-adjusted-EBITDAX (earnings before interest, tax, depreciation, amortization and exploration expense) ratio of ~1.0x in the long term.

Callon Petroleum

As of 4Q17, CPE had an LTM leverage ratio of 1.4x. On May 31, 2017, Callon Petroleum restated its credit agreement, extended its maturity date to May 25, 2022, and increased the borrowing base by 30% to $650 million.


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