I don't wish to deliver what I see as not so good news but that advisory lets me fill in the gap for Feb and then make the estimates for Mar - and the fact that 6 wells may not be online producing could be problematic.
On the plus side it preserves the value of their asset by receiving a higher price. A question to which we would unlikely get the answer to is whose idea was it - Slawson I would suggest is better positioned than SSN to whether the storm and can "afford" to wait.
The loan obligations are straightforward:
1. Maintain lower than 3.5 x 1 Debt/EBITDAX coverage
2. Keep better than 2.5 x 1 Interest Coverage
3. Current Ratio of better than 1.
It also details that SSN will be providing an updated Reserves report by Mar 31 and a Borrowing Base redetermination be done by April 30.
IF and I say IF the BB has been drawn to $19M as suggested then by inference:
1. EBITDAX will need to be > $1.36M for the Qtr (annualizes to $5.44M which is ~3.5x)
2. Calculate interest at the 3.48% rate on $17.5M only you get $50,750/mth or $152,250 for the Qtr. To maintain coverage of 2.5x you'll need EBIT of $380,625.
Since I think I have pretty close model of Cash Margin, without strong production in Mar AND a recovering price then both of those covenants stand to be tripped. My estimate is if WTI avg for the Qtr is $52.50 AND production comes in at 40,000 BOE that gets them over the Interest Coverage Ratio. As I have difficulty in reconciling SSN EBITDAX (and Robyn declined to answer email with that request) I have to go on gut which says fail.
Just my opinion though. But I will say that SSN has again been either overly optimistic or disappointing with its guidance as the reach the Enercom presentation production guidance from Feb of Q3 avg of 1350 boepd it will need to produce 78,500 Boes - how likely is that?
SSN Price at posting:
1.3¢ Sentiment: None Disclosure: Not Held
