Their coal seam gas business, for Arrow, Santos, etc. should be fine in the medium term. They have a large market share, maybe the largest, in laying pipelines, connecting wellheads, and doing other surface work in eastern Queensland. Drilling activity is off. But either it will have to go back up, or BG, ConocoPhillips, Santos, Total, and Sinopec made one of the biggest screw ups in the history of oil and gas. They spent over $20 billion constructing LNG facilities at Gladstone, and over the next 20 or 30 or 40 years they'll have to drill lots and lots of wells to provide the natural gas for the facilities, and that will result in lots and lots of business for WDS, assuming WDS is still around.
Prior to the trading halt I wasn't that worried. A $27 to $28 million loss for FY2015 would imply a $12.6 million loss for the 6 months ended 30/06/2015. BUT, I'm guessing depreciation during the six months may have been around $8 million. It was $8.5 million in the first half of the fiscal year, and $14.8 million in FY2014.
I don't think they've had significant capex the last six months.
The debt at 31/12/2014 was $12.5 million. Subtract the $12.6 million loss and add back $8 million depreciation and you end up with 17.1 million debt.
I was expecting them to shave some off of that by juggling working capital. They had $44 million trade and other receivables (including amounts due from customers for contracts) and $22 million trade and other payables at the end of the calendar year. So receivables were $22 million more than payables.
I figured they should be able to hold on until the oil and gas activity kicks back up. I wasn't so concerned about the problem with GE, as I figured GE or another lender would take into account Eagle Downs was a one off. And they would consider that if you add back the depreciation on equipment that's not being used or not being replaced, the problem with fixed charge coverage going forward into the future doesn't look so bad.
I'm concerned about the latest announcement. If Eagle Downs has decided to quit paying, wiping out a chunk of trade and other receivables, then there's potentially an existential problem, depending on how everything plays out. I guess we'll find out soon enough.
WDS Price at posting:
10.5¢ Sentiment: Hold Disclosure: Held
