RE: oil looking better11 Nov 2022 14:40
It would seem you don't understand:
example:
As in all economic analysis, ceteris paribus
Debt is £1mil income £100k capital value of asset £2mil
Inflation 10%
Debt £1mil income £110k capital value of asset £2.2mil
Do this over say three years and the real term value of the debt has significantly declined, whilst the income has gone up and the capital value of the asset has gone up.
There were lots of articles around last autumn about the uber-wealthy in the US taking on lots of debt and fixed the repayment terms with below 1% interest rates. Why, did they do it? Because of the real terms effect on the value of debt. They would expect the value of their assets to stay broadly the same whilst the real terms value of the debt declined. In effect, inflation resulted in a transfer of wealth from the lender to the borrower.
Again, the big issue is default. As long as the borrower can service the debt there is not an issue. The interest rate on NTOG's debt is about 4.5%. Lets suppose that NTOG has $3mil of debt then the interest charge is about $135,000 pa. At $80 oil that requires about 1,687.50 barrels of oil. Lets suppose production is 300 days a year; that comes down to 5.625 barrels per day. Current production should be at around 200 bopd net to NTOG.
Are you seriously suggesting that NTOG can't service its debt? In reality NTOG could service a lot more debt. At the next redetermination I expect WAFD to increase the size of the facility.
An increase in the size of the facility doesn't mean that NTOG has to use it but it does give NTOG flexibility if a suitable deal becomes available.
https://www.londonstockexchange.com/news-article/NTOG/senior-facility-expansion-and-asset-value-increase/15385567
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