Mid-Con becomes 'going concern,' filing for second quarter states
TULSA — Mid-Con Energy Partners included “going concern” language in the first quarterly filing it has made after reorganizing.
In a filing for the second quarter of 2020 made with the U.S. Securities and Exchange Commission after markets closed Friday, company officials said its ability to operate into the future depends on whether or not it can successfully renegotiate its revolving credit agreement.
“There can be no assurance, however, that such discussions will result in a refinancing of the credit facility on acceptable terms, if at all, or provide any specific amount of additional liquidity,” the filing states. “These factors raise substantial doubt over the partnership’s ability to continue as a going concern for at least one year from the date that these financial statements are issued, and therefore, whether we will realize our assets and extinguish our liabilities in the normal course of business and at the amounts stated in the unaudited condensed consolidated financial statements.”
For the second quarter of 2020, Mid-Con Energy Partners posted a net loss of about $11.9 million, or $2.29 per share, on total revenues of about $1.3 million.
In the second quarter of 2019, it had posted a net income of about $5 million, or $2.53 per share, on total revenues of about $20.9 million.
Earlier this year, the company reported that it had earned a net income for the first quarter of 2020 of about $2.8 million, or about $1.02 per share, on total revenues of about $38.5 million.
Reorganization, credit change
Mid-Con Energy Partners reorganized its ownership structure and dismissed its top executives in early June when the size of its revolving credit facility was slashed by $31 million, from $95 million to $64 million.
To reorganize, the company converted preferred units held primarily by Goff Capital into common units that were worth $3.12 each. Goff Capital then bought out other equity owners through providing them with common unit distributions, leaving it with the ownership of the majority of the company’s outstanding common units.
As part of that restructuring, the company also replaced three of its board members and announced plans it already has executed to use a different operator for its assets.
At the end of July, it announced a new leadership team. Sherry L. Morgan was named the general partner’s new CEO, while Jodie L. DiGiacomo was named its new chief accounting officer and Greg Westfal was named its new chief operating officer.
The amount it owes under its revolving credit, which currently stands at about $73.3 million, remains a problem.
The company has had to establish a repayment schedule to address the account’s overdrawn status, for now.
Additionally, its borrowings through the facility are secured by liens worth not less than 90% of its proved value reserves.
That value has been falling because of this year’s rapid decline in values for oil.
The company recorded an impairment expense of $1.2 million on those values for the second quarter of this year.
Its ability to make money through production also has taken a hit.
In response to spiraling oil prices in March, Mid-Con Energy Partners shut in about 250 uneconomic wells, following that with the closure of about another 150 in April.
Those shut-ins pushed its average daily production to about 2,780 barrels of oil (equivalent) for the second quarter, off 21%, year-over-year.
In addition to shut-in activities, the partnership has continued to identify and execute other strategies for reducing expenditures and lowering its leverage through introducing “anti-cash hoarding” provisions and other restrictive covenants on capital and general and administrative spending.
To regain compliance with its facility’s lenders, it must adhere to an indebtedness to EBITDAX (earnings before interest, taxes, depreciation, amortization and exploration costs) ratio of 5 to 1 by the end of the third quarter and 4.25 to 1 by the end of the first quarter of 2021.
The filing for the second quarter of 2020 didn’t include an EBITDAX number, though company officials said the business had complied with the ratio requirement for that period.