Cmon & All, - you ask good questions! FWIW I don't see your comments as negative but good DD, I appreciate the constructive review and my answers are only my opinion and I believe we each if inclined should balance all aspects. At this time because of the O&G sentiment we have time to better understand these issues as there is less noise and whether here or other companies SSN is one of the better companies to be watching due to the disclosure and history. Those lessons and knowledge imo should place SSN shareholders in good position to apply this knowledge broadly. Whilst intangible that knowledge has a great value when/if the sector sentiment improves.
Current ratio I don't think the loan would be included in the calculation but I only have the same info as everyone. I had a look at the credit agreement and it says in the definitions page 5:
"Current Liabilities" shall be determined in accordance with Section 1.03 hereof and shall exclude (a) aggregate current maturities of the Obligations and (b) any non-cash mark-to-market"
Further "Obligations" are defined (page 15) "Obligations" means, collectively, (i) all advances to and all debts, obligations, liabilities, (including all renewals and extensions thereof, or any part thereof), and all covenants and duties of, any Loan Party arising under any Loan Document or otherwise with respect to any Loan or Letter of Credit, including all obligations of any Loan Party described in Section 11.04 hereof,
If above is incorrect you have a good point, I hadn't considered previously in my calc's s as had assumed it wouldn't be included. Personally I don't think SSN is stressed and think the Bank would look favourably on the results based on my understanding but each should form their own opinion. The low oil price undoubtedly creates challenges so doesn't hurt to give some thought to these challenges in our analysis.
Reflection points -
2. Weaker hedging in 2016 - this is true however the cost of production imo will fall due to volume effect and this is the best hedge for low price scenario. Capex required is not high and can be deferred and development of new asset done "in house" which means some of the fixed costs could justifiably be capitalised or part recouped on any farmout. When the June numbers come out we will get a better feel for unit costs but think Sept qtr would be most important as that will show a longer term average for the new setup.
1. I don't think the debt here is high, if it is an issue they could pay some more off with the current Sept Qtr liquidity
On the production numbers in the last presentation, I have calculated that the 2016 production will be higher than 2015 therefore production will grow without capex. This should be the case because some of the wells paid for in 2015 FY had only just started producing. There will be decline in the individual well prodn rate however increased availability in 2016 should more than offset this decline. Monthly production can be estimated from that chart.
Acreage size doesn't really matter to me, imo there is no value attributed to this in the current MC therefore no risk to my valuation. If MC was higher than EV calc due to acreage it would be of concern though.
On growth I don't see a need to rush drilling, drilling new plays comes with risk and dusters hit the bottom line straight away so imo best to put the effort into planning and produce the existing wells whilst managing costs, tough out the market and be ready for any turn around. I think mgt have the experience to balance all the aspects and have put the company in a good position.
Gotta go, daughter needs a lift, hope there's not too many typo's. As always just my opinion. Cheers
SSN Price at posting:
0.4¢ Sentiment: Hold Disclosure: Held
