Hi
@Rob79,
Good to hear from you. Mostly agree with you opening and closing paragraphs. The meat in the middle I find not believable. Here's my reasoning
1. NPV10. Process has not changed so to me PV10 then and PV10 are indicative of the value. The "sticking" point is how close to 100%. Well a year ago the sentiment for O&G was far stronger than it is now. Just a year into the downturn and the mood was clearly "it's going to turn". You would only need to review the posts here to see that. TB Pickens calling $100 oil again (or whatever it was) lots of posts about all the positive things. So no it is not believable to me to say it would have been tougher back then.
2. The bank has been supportive of SSN? We do keep coming back to this chestnut. MOB has its interests in 1st, 2nd and 3rd place, then the interests of the OCC and its own investors and then SSN. Just look at the facts. Yes it kept getting covenant waiver on the Debt/EBITDAX ratio (as many did because most back a year ago were expecting prices & supply to rebalance and SA to stop its foolishness). But what did MOB do? It lent more money on a very clever acquisition (if old Aussie here can see how FB changes SSN capital efficiency then so can MOB) AND THAT CAME WITH PUNITIVE STRINGS ATTACHED!!
To remind ourselves, read what SSN wrote in its 10Q about the "additional" funding. Bold is me
"As a condition to providing financing for our Foreman Butte Acquisition, our primary lender required us to amend our credit agreement to include materially more restrictive terms. These new terms include: (1) more restrictive financial covenants (described below); (2) increases in the interest rate and unused facility fees; (3) a minimum hedging requirement of 75% of our forecasted production; (4) reducing annual G&A expenses from $6 million to $3 million; (5) raising an additional $5 million in equity on or before September 30, 2016; (6) paying down at least $10 million of the credit facility by June 30, 2016; and (7) a monthly cash flow sweep of 50% of our cash operating income. These amendments could make it materially more difficult to operate our business, and there can be no assurance that we will be able to remain in compliance with these covenants, particularly in the current oil price environment."
So no it is not believable to me that MOB has anything but its own interests in play and point 4 in the press release of sale of NS abou
t "...maintaining the excellent the excellent working relationship we have with our lender" is nothing more than saying we scraped in before the deadline with our sale and even though we don't have the closing settlement cash from the sale they accept it is sold and they look forward to us bring the required $3.5M+ of additional shareholder equity capital into the company before Sep 30.
3. The waiting for things to improve plan would have been a certain path to Ch 11. No ifs or buts about that. They were not able to be in compliance with Debt/EBITDAX covenant and the declining production (which I hope you saw in the announcements) would have made that certain.
The FB acquisition was the company saving rabbit out of a hat. It was a genius move. Don't forget he needs at least $6M in Capex to finish off the next 15 wells. Got $3.5M net cash from sale of NS and approx $3.5M of net equity sales coming. Put that to work in FB in Stage 2 and SSN has a good chance to pull it all together.
Just my considered view.
GFTA
