... many of the SSN specific unknowns will be released (IMO)....

... many of the SSN specific unknowns will be released (IMO).

I'm going to put up a very detailed post on what I believe to be the key metric. SSN does a very good job of disclosing much of its financials - better than most ASX listed oilers. There is however one key metric that they do not disclose -  and I did email requesting the info from Robyn - but it was not supplied.

That doesn't mean it cannot be reasonably estimated from to SEC 10Q filings, nor can the method be disputed (as it relates to SSN) as the calculation is detailed in the Credit Agreement with MOB.

I am of course referring to the Qtrly EBITDAX calculation and the relationship with the debt covenant.

Shitty weather yesterday - so no golf - and I decided to spend some quality time with SSN's financials (this did indeed take hours and not minutes). The results can all be verified by going back thru to 10-Q filings and the 10-K.

The other thing I'll add as "colour" - I hope someone (Rob79? and anyone else) will give this some close scrutiny and challenge it - and maybe correct it (as I do not warrant it is error free and the divergence from what I was expecting and the known disclosed checkpoint by SSN is too big).

I do spend a lot of time reading and analyzing O&G E&P companies. There is a clear and present trend over the last 90 days wrt to company financials. Some of these actions telegraph what was likely to happen with Q1 reporting if nothing was done, and so a few companies bit the bullet and got ahead of the "pack" maybe.

The spreadsheet created used the outline as presented in the SSN MOB Credit Agreement to calculate EBITDAX.

That initial calculation came up with the "Grey" highlighted row for the Qtrly EBITDAX which was then annualized (using method stipulated in the Credit Agreement until a TTM could be calculated - from Q4 onwards)  and applied to the funded debt to come up with the covenant ratio below it. Those ratios made no sense.

It would seem logical to deduct the cash balance at Qtr end from the Debt (as obviously SSN could draw it down but since it has not been used could repay it) and use Net Funded Debt as the Debt value for covenant calculation also highlighted in "blue". That helped but covenant would have tripped earlier than Dec Qtr.

That means I have to find more money to add to EBITDAX - but its kind of hard to make things up on the CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited) Statement (which you'll find early in the 10-Q around page 5). So I added what ever was left which is the "9. plus all other non-cash charges".  It certainly helped and kept SSN conforming with the covenants until Dec Qtr where the first trip was reported.

The resultant annualized (TTM) EBITDAX is highlighted in "yellow" and the covenant ratio in the "red" row.

My problem is with my number of 5.98 as the ratio when SSN reported the ratio as 4.21. At that ratio the TTM EBITDAX needed to be $2,759,825 as shown. I'm off by $800,000 which is significant and I certainly can't find numbers to raise it by that - if anyone else can help that would be terrific - OR anyone with good relations with SSN mgmt please get Robyn to release the RECONCILED ADJUSTED EBITDAX determniation as reported to MOB.

Here are the details from all the above and then perhaps some implications...



Implications?

I believe SSN has drawn down the balance of the BB to be fully drawn at $19M. Lets say they have $3M cash at EOQ - leaves Net funded debt at ~$16M. Since SSN received a waiver the previous Qtr and not a change the 3.5 ratio remains and the implied TTM EBITDAX needs to be ~$4.572M

Anyone disagree so far?

Given the TTM at Dec had to be  ~$2.76M and we can pretty much infer that the Mar Qtr will be worse than the Dec Qtr (realized price of oil alone should make that statement unchallengeable), their needs to be approx $1.8M of additional EBITDAX added in Mar ($4.572M - $2.76M).

Fair & reasonable conclusion??

If that is the case SSN has to be staring at another significant breach on the Debt/EBITDAX ratio.


Implication?

I look to the actions of other companies and have in the past listed some of the companies issuing equity, convertible notes and high yield bonds to get ahead of the problem. Again not to say Banks want to be oil property managers (in the same way they didn't want to be last time this occurred or real estate agents in the housing market) but they also have a business to run and they are regulated.

You have to satisfy yourself that SSN BB re-determination (which in the Credit Agreement says before Mar 31 SSN provides updated Reserves report and by April 30 MOB determines new amount) is or is not going to be an issue. I would be surprised to see a reduction outside of 20%-40%. The problem of course is SSN is fully drawn at $19M which means $4M - $8M might be needed. You'd think the bank will work with its client and I would expect to see a change which perhaps a "Conforming tranche at a Libor+margin based rate along with a covenant maybe raised to 4.5x" to give them breathing room and then a much higher (thinking 12%-15%) high yield bond which SSN would take down to pay the BB reduction and for additional working capital. Possibly even an equity raise on top of that to strengthen the balance sheet - as has been done by many companies so so far in the past 120 days.

Based on that SSN has a Qtrly due by end April (possibly an operations update by end of this week which may tell Mar production), a 10Q due by mid May and given the re-determination is done April 30 I would expect that to be released ASAP and it is considered material (by SEC anyway).