August 6, 2009 / 7:57 PM / 9 years ago

UPDATE 2-Compton posts Q2 profit, plans debt restructuring

* Q2 EPS C$0.16 vs loss/shr C$0.07 yr ago

* Revenue falls 71 pct

* Average production down 30 pct (Adds details, analysts’ comments; updates share movement)

By Koustav Samanta

BANGALORE, Aug 6 (Reuters) - Canada’s Compton Petroleum Corp CMT.TO swung to a second-quarter profit boosted by foreign exchange gains that offset the impact of lower commodity prices.

Compton said it was considering recapitalization alternatives, including conversion of debt to equity, issuance of new capital and equity, and mergers, to reduce its debt level.

The company’s debt stands at about C$400 million at current production rates.

“The market wants to see what the restructuring looks like... before they can determine what the stock is worth,” Blackmont Capital analyst Gord Currie said by phone.

The company is also considering a sale of gross overriding royalty on its properties as a part of its restructuring plans to achieve a debt-to-cash flow ratio of less than 2:1 in a normalized pricing environment of mid-cycle natural gas prices, it said.

CIBC World Markets analyst Christine Ezinga said by phone, the conversion of debt to equity as a strategic alternative made the most sense to her, but added any one of the options was not a complete solution.

Ezinga rated Compton’s stock as a “sector underperformer,” saying the new management has been proactive in addressing leverage issues. She has a price target of 75 Canadian cents on the company’s shares.

Compton said it will continue its defensive strategy of living within funds flow and investing in projects that meet internal rate-of-return hurdles, until a clear signal in the recovery of commodity prices becomes evident.

The company said it was reducing its internal cost structure and re-evaluating its depletion strategy to optimize asset value in order to face the challenges from lower natural gas prices.

Compton, whose operations are located in the deep basin fairway of the western Canada sedimentary basin in Alberta, reported net earnings of C$19.8 million, or 16 Canadian cents a share, compared with a net loss of C$8.6 million, or 7 Canadian cents a share, a year earlier.

However, the company reported adjusted operational loss of C$15.5 million, primarily hurt by non-cash items.

Revenue for the quarter fell 71 percent to C$54.1 million, while funds flow from operations fell 87 percent to C$9.6 million.

According to Reuters Estimates, the company reported a loss of 13 Canadian cents a share, excluding items, which is in line with analysts’ estimates.

Average production fell 30 percent to 21,440 barrels of oil equivalent per day due to property dispositions, natural declines and the lack of volume additions from drilling in the quarter, the company said.

Shares of the Calgary, Alberta-based company were up 4 Canadian cents at C$1.20 Thursday afternoon on the Toronto Stock Exchange. (Editing by Jarshad Kakkrakandy and Unnikrishnan Nair)

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