Top five upstream stocks by lack of leverage
In this part, we’ll discuss the leverage ratios (asset-to-equity ratio). A high asset-to-equity ratio indicates that debt is financing a more significant portion of a company’s assets. In this part, we’ll discuss the top five upstream companies with the lowest leverage as of the first quarter.
Compared to the industry average of 2.32x, the top five upstream companies with the lowest leverage as of the first quarter were Ring Energy (REI), Tellurian (TELL), Centennial Resource Development (CDEV), Sandridge Energy (SD), and Energen (EGN).
Ring Energy’s leverage ratio as of the first quarter was ~1.09x. The company doesn’t have any long-term liabilities, which means that its assets are mainly financed by equity. Some investors may consider a low debt-to-equity ratio to be a sign that a company isn’t taking advantage of the potential increase in profits that financial leverage might bring.
Tellurian’s leverage ratio was ~1.11x as of the first quarter. Like Ring Energy, the company doesn’t have any long-term liabilities. In the first quarter earnings release, Tellurian’s management said, “Tellurian ended its first quarter of 2018 with approximately $112.5 million of cash and cash equivalents and remains debt free.”
Centennial Resource Development
As of the first quarter, Centennial Resource Development’s leverage was 1.25x. The company’s long-term debt as of March 31 was ~$391 million. The company also has a revolving credit facility with a borrowing base of $575.0 million and elected commitments of $475.0 million. According to Centennial Resource Development’s annual filing, the credit agreement contains restrictive covenants that limit its ability to incur additional indebtedness, make investments and loans, enter into mergers, make or declare dividends, and sell assets.
Sandridge Energy’s leverage was~1.28x in the first quarter. During the quarter, Sandridge Energy repaid its $36 million building note, which resulted in no outstanding long-term debt at March 31. The company’s $425 million credit facility borrowing base was reaffirmed by its creditors.
Sandridge Energy exited bankruptcy in 2016 with~$3.7 billion of its second lien and unsecured debt converted into equity.
As of the first quarter, Energen’s leverage was 1.46x. As of March 31, Energen had long-term debt of $528.0 million and a line of credit borrowings of $228.0 million. The company expects its total net debt-to-adjusted EBITDAX at the end of the year to be 0.9x–1.1x.
Next, we’ll discuss how these companies’ stocks have performed.