Cmon, In general for oil and gas sector at the moment I agree with your analysis, where I differ is specifically related to SSN and this also applies to some of my other stocks which are all in good position to firstly weather the current storm and also take up opportunities which will undoubtedly arise in others due to points you make.
All the O&G SPs are down so like you the last few years have not been good for me and that imo is largely due to overall market sentiment and the lowest common denominator which is the shareholders who have lost confidence in their personal investment strategy. Also the ability to move money to better performing sectors such as tech and graphite has left a hole in the O&G sector however imo those fundamentals are extremely difficult to value and no doubt in the futuresome will suffer the fate we have in O&G.
For me the hedging levels was a big flag to identify the companies to avoid, imo they essentially told the market they had no confidence in their production costs and assets and have also through the hedging policy told us the minimal price they need to cover their obligations, interest and fixed costs.
In SSN's case they have shown a plan to produce out the NS wells and that production if achieved I believe it will result in growth from 2016 over 2015. They have detailed $6.1m liquidity currently existing and this would cover all 2016 FY Admin and interest if they chose. The cash production cost only is less than the realised oil price even at these levels and minimal capex required to achieve this growth. The debt matures in January 2017 so as long as the relationship with Bank is strong and covenants satisfied there is a sound base here imo.
My view is a contrarian view I understand however for me the current pricing for all energy commodities makes no sense and is contrary to the anti fossil fuels sentiment aimed at promoting renewables. Personally I think the low energy prices are being used to stimulate economies as there appears little room to do it with interest rates now.
There were very few ASX oil companies that had a positive operating cash position in the June quarter, those that did imo have the best chance to weather the storm and that for me is what the current analysis is about, not growth or new projects. If I had a small criticism of mgt atm it would be that in the recent presentation there was not a clearer in our face statement of financials of some of the things I waffle about. Imo the numbers here are and have been predictable so perhaps that is waiting for the Annual accounts.
I agree on the 10k point made, I was a bit lazy and you are correct, like you I look forward to the US reports as they have much needed detail for analysis.
As always this is just my opinion, if my numbers change my opinion will change and that opinion uses the SP as a guide to value. Historically I doubted the value here (pre March 2014 due to the capex required however currently at this market cap compared to EV I believe SSN is worth having a detailed look however I don't expect market sentiment for the sector to change anytime soon so it becomes a personal choice on what value is. Personally I think currently the value is in identifying those O&G stocks that are most likely to rebound on change of sentiment and having a plan to ensure at all points we understand the risks to best protect our investment and sanity.
Cheers
SSN Price at posting:
0.4¢ Sentiment: Hold Disclosure: Held
