You know life is starting to get back to normal when I start a post with “Dear CDEV” .  Remember those days?  Free to go to restaurants.  Not look awkwardly at the person across from you wondering if you should touch elbows, foot bump or air high five.  Pick on management teams and not feel like you were stealing candy from an infant?  I do.  I miss those days.  But which each passing hour, I feel like we are closer to getting them back.  I went for a walktail downtown yesterday, and aside from the homeless problem, the boarded up windows, and the fear that we are entering a Depression the likes of which we have never seen before, it was awesome.  Optimism!  Pass it on.

On April 21st, CDEV put out an 8-K in conjunction with their debt exchange.  I forgive you for missing it, if I’m honest, I only read the press release and not the whole 8-K.  Although we talked about the details on the live Q&A #hottake radio hour yesterday, we will dig in a little further today.

In the last 2 weeks, the stock has moved from $0.25/share to $0.80/share and while relative to my November 2019 thesis, that would make anyone want to cry, relative to my March 7th thesis, I’m positively euphoric!

In short, CDEV is one of the first companies post COVID-19 to do a debt conversion to clean up their balance sheet without resorting to Chapter 11.  That’s why their stock is way up, and why I can actually write this post with a hint of a smile.  CDEV is exchanging $900 million of outstanding senior debt for second and third lien notes worth $450 million, with an earlier maturity and higher interest rate.  It has the net effect of lowering their outstanding debt (reduces bankruptcy risk) and lowers annual interest payments (reduces bankruptcy risk) and recognizes that the $900 million of outstanding notes, trading at $0.28 on the dollar, weren’t going to get all of their money back.  Hopefully a lot of the companies I mentioned yesterday (and Callon) were paying attention.  The conversion, if completed in mid May, is a win for equity holders who have been crushed over the past year and a win for debt holders (in that they have a higher likelihood of being paid back).  Also of note, Riverstone who is 28.2% owner in the common equity, also owns $51 mm of the 2026 notes and $107 mm of the 2027 notes, so they will continue to play a very significant role in the capital structure.

Finally, as a little PS in that 8-K filing, they provided an updated PV-10 at strip (every company should), an announcement that completions and drilling were at 0, and they were considering shutting in a “substantial amount of production” which I love to protect the NAV but also…. like… hello!?  In concert with the hedges they put in place for April – August at $26.08/bbl for 25,500/bbl and the retirement of Mark Papa in March, they are doing what a company needs to do to survive.  Hope is not a plan.  React.  And change sh*t.

In a post COVID world, I still believe CDEV makes a bigger Delaware player better (Noble, Apache and a few others) and ultimately, I believe they will merge for equity with someone in 2020.  It’s not at the price I had thought January 2nd when I was of the view $63/bbl was the average in 2020 but the world has changed, and we most make due with what we have.  $0.80/share feels oh so much better than $0.25 but there is a lot of time left on the clock.

So, CDEV, I salute you.  But still want to point out that I have more shares than your non-executive board members so…..

Love and socially distanced hugs,

#hottakeoftheday