The Bakken discount should (but all are free to ignore it) be included in any revenue or NPV analysis to a WTI index basis. CLR does it. Hedging can be applied as further gain/loss on actual received.
And very specifically for this Qtr at least there are a specific number of barrels hedged at specific prices (so no discount or index applies there). You know in advance what your realized price is and the sales revenue. The remaining production not hedged goes to wherever/whomever SSN sells its product to - I was simply using the nearest index - Williston Basin Sweet operated by PAA.
Hedges are always going to roll off and on as settled and the mark-t0-market is just accounting is it not. What is the most important measurement IMO at present will be SSN reported Qtrly EBITDAX. Now since its Before Capex spend it is all about the cash being generated from recurring operations - hence why the bankers have the covenant of Debt/EBITDAX multiple no higher than 3.5
Decline in production - I did say with up to 8 wells coming online in Q1'15 that a big jump is likely, but there is going to be a decline in production - TB presentation points that out (or did I look at it upside down?). How long that continues is purely a function of Capex spend on exploration and development. Declining production is natural (look at the super majors for instance).
As far as Lifting costs go - I'm pointing out the definition - I am positive that for example DD&A must have been excluded. It's also a variable number as it is expressed as $/Boe and clearly when a reltively fixed number (say G&A) is the numerator and the denominator is a growing number (BOE produced) then the G&A$/BOE comes down. Simply pointed out its easy to say $29/BOE but not as simply to say exactly what went into the numerator and how large was the denominator. Was it the forecast total of 2015 production before Capex reduction (sounds reasonable for Nov 11).?
The indisputable number (even by me) put out by TB is the full cycle breakeven of $68/Bbl. For most E&P companies that would mean the longer term (3 year average not uncommon) of Production cost per barrel + F&D costs per barrel + SG&A + Transportation costs + WACC to produce a barrel of oil.
The implication is simple - unless you can cover this cost in the long term your operations are not sustainable. Even this cost varies because say in case of Santos at present the cost of building GLNG would mark up their overall corporate full cycle costs as the expense is being incurred now. So at present, given the information supplied by SSN, they need WTI to be approx $79-$85 for sustainable operations and that is why you've seen the effective suspension of any new drilling (NS project).
Bankers are just businessmen. They aren't usually the smartest guys in the room either (how many O&G guys have outsmarted bankers over time - plenty). They certainly would want to "assume the asset" that they lend over. But lets be real clear - "The oil price was well into its decline last meeting and Omaha reduced the interest rate, increased the borrowing base and the available funds." - had nothing to do with SSN getting its debt revised. There are clear terms - every Apr 30 and Oct 31 - are when the Bank will together with SSN revise the borrowing base taking into account Reserves added and production depletion.
Miss a payment or trigger a covenant default and you'll see whether or not they are shrinking violets. Most likely thing to happen: 1st- get a waiver, 2nd time ask to get multiple increased to 4 (comes at a price) & 3rd time - ask for prepayment of partial payment of the loan. Just business.
As to valuation multiple - that is "up for grabs" - maybe about time too as it was being too evenly applied across the sector. $50K as good a number as any.
The good news is the jump overnight - some distressed names up 20% or more.
GLTA - hope that SSN participates in today's rally
SSN Price at posting:
1.1¢ Sentiment: None Disclosure: Not Held
