Not saying you're saying numbers are great or putting a spin on it. What I'm saying is the report itself is not okay - and believe me SSN is not alone in this regard.
It is clearly telling readers that:
1) in this low oil price environment we can not earn enough on our production (which is declining QoQ and becoming more gassy unless that's a anomaly) to remain compliant on our debt covenants.
2) we have no real viable option (remembering that debt is becoming current period) to repay existing debt and develop shareholder value. I'm not saying BK as SSN does have assets of some value in the Bakken.
#2 might be harsh but short of asset sale what would be the plan - and hoping for rapid rise in oil price is not a plan. I know the presentations have highlighted projects that work at $50 oil -- but where is the capital coming from (yeah I know a JV) and cash flow from (existing) operations at $50 WTI barely keeps SSN's head at the covenants, and debt maturity marches forward (I know Jan '17 seems a long way off but it really isn't).
SSN is really difficult to value - meaning if you use any form of cashflow multiple then its near worthless. That leaves valuing them on say the asset basis - meaning PV10 using the forward strip (which keeps going lower) and what % of that buyer offers and seller is willing to accept. From the Jun'15 annual report, using SEC standardized measure Reserves are valued at about $35M - but that's significantly higher than forward strip. Bit of an educated guess but going rate about 60% - so barely covers debt.
So there is value to a Bakken E&P. For example AXAS has LOE at $9.48 and G&A at $3.29 (compared to SSN at $18.65 & $13.65 respectively). So much more cash margin generated for them.
Rule of thumb for measuring "OK" (probably in this order)
1. Debt position: compliance with covenants, serviceability and maturity schedule
2. Cash generation: cash margin on continuing operations, cash burn (noting that sometimes even giants have to outspend cashflow for big projects), FCF
3. Hedging: risk management, cash flow insurance (% of production), upside availability
4. Asset Value: impairments, backward looking (SEC) and forward looking (Strip)
5. Overall EV multiples
GLTA
SSN Price at posting:
0.4¢ Sentiment: None Disclosure: Not Held
