To each their own view as that's why we have a market. I do think though you do have the hedging concept all mixed up with the statement
"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"
1. With RBL facility, (minimum required) hedging is often dictated in the agreement
2. Hedging's purpose is to reduce risk and guarantee certain cash flow - little to zero to do with production costs and asset quality. That cash flow is the Capex lifeblood that E&P company needs to grow. Some companies hedge a lot and others a little. The hedging I've talking about are predominantly Swaps and not collars (especially not 3 way collars).
Spend some time on upstream MLP companies to understand how important this function is when developing a property. These companies exist to buy maturing assets with predictable decline and hedge production multiple years into the future to guarantee the cash flow to develop and pay a distribution (like a dividend) to unit holders.
WRT to the Debt facility, SSN has to deliver a Reserve Report to MoOB by Sep 30 and a redetermination occurs by Oct 31. Clause 7.02 (c) acknowledges that the loan threshold is 80% (well done as that is high) of the value of Reserves remaining - so very sensitive to price deck. I would not think the NPV would be below $25M ... 80% is $20M
My reference to debt maturity is simply that there is a covenant in the agreement that requires a "Current Ratio of 1:1". At present the BB is in long term debt. Come Jan'16 Qtr it will move from long term to current obligation (as I understand it because it is now due within 12 months) and that simply means for every $1 of current obligation there needs to be $1 of current assets. I believe that is something that needs to be considered (or for those attending the special meetings to ask how it would be addressed).
I recall (I think) that you said you were in accounting - have I got the above correct or is it nothing to be concerned about?
SSN Price at posting:
0.4¢ Sentiment: None Disclosure: Not Held
