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1.5¢ samson oil & gas limited

What will SSN's pending Reserves Report tell us?, page-2

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cmonaussie

10,780 Posts.

3546

26/02/16

17:49

Post #: 17129065
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Originally posted by cmonaussie ↑

As a basis for understanding I'm going to use what OAS (since SSN is buying some of their assets) pre-announced and see what it tells us. These reports use the SEC backward looking oil price methodology. We can plug in SSN values when released.

1. YE 2014 calculated using SEC pricing $95/Bbl WTI and $4.35/MMBtu natural gas.
2. YE 2015 calculated using SEC pricing $50.16/Bbl WTI and $2.63/MMBtu natural gas.

(A) Oil price decline of ~47.%

3. OAS YE 2014 PD of 146.3 MmBoE with PV10 of $4.1B
4. OAS YE 2015 PD of 147.6 MmBoE with PV10 of $1.8B

(B) OAS PD Reserves volume roughly flat (at least they managed to replace production)
(C) PV10 value declined by ~56% (so greater than oil price decline)

Of course this is a good time to bring up OAS Debt. Using the Net Debt Number of ~ $2.3B (so ignoring C&CE primarily the Hedge Book value) you can make the observation that OAS has greater debt of its property than what the (PD) property might fetch (owe more on mortgage than what house will sell for).

(D) Implied Value YE 2015 is now $12.20/BoE (dividing PV10/PD from (4) above) down from $28.02/BoE
(E) Decline of 56.5% (as it should be since PD approx flat)

Turning now to SSN

(i) YE 2014 calculated using SEC pricing $95/Bbl WTI and $4.35/MMBtu natural gas.
(ii) YE 2015 calculated using SEC pricing $50.16/Bbl WTI and $2.63/MMBtu natural gas.
(iii) SSN YE 2014 PD of 1.563 MmBoE with PV10 of $35.61M (excludes PUD)
(iv) SSN YE 2015 PD of ??? MmBoE with PV10 of ???

Implied value YE 2014 PD Reserves is $22.78/BoE (I attribute this to OAS being a lower cost producer and their rocks being more productive).

Can only guess for SSN YE 2015 but we do know they turned their PUD of 213MBoe to PD and produced 317MBoE which leaves as a starting point 1.459MmBoE. To that we can add any Reserve related changes from observed reservoir productivity, price changes (i.e. uneconomic Reserves) and any new Reserves from drilling.

Assuming a "flat" comparison - thus using the 56% reduction in value I get
implied SSN YE 2015 PD PV10 of $15.67M
(which is also greater than the Debt owed)

The above scenario is being played out on many companies at present.

I'll state the obvious in that the really bad news (not just SSN) is that this scenario keeps getting worse in the SEC pricing model as Jan'15 price rolls off and replaced with Jan'16. So come next round (generally April for US companies) of BB redeterminations the PD PV10 value keeps getting reduced and if banks are forced to reserve against losses for non performing loans (which most are) the spiral gets worse.

Ignoring the above doomsday paragraph (but acknowledging it exists), SSN is buying the OAS acreage at approx $10.52/BoE of PD (inc PDP but excluding PUD) which is about 86% of OAS stated value per BOE of its PD Reserves.

Once again, SSN is buying these Reserves at lower cost than what they can drill and develop and it shows the acquisition to be in SSN's best interests and in MOB's best interest IF the price of oil recovers to prices shown in the Strip (by SSN relative to Oct).

GFTA

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If I could just go on a sidetrack here. No secret that I hold LNR and think of them as probably the best of the ASX pureplay USA shale E&P. Note they are are in the process of delisting from ASX.

LNR just released its Dec 31 Reserves report. I just want to draw the attention to page 2 Table 2 "Changes in Proved Reserves" to the line "Revisions of Previous Estimates"

6.4Mmboe was removed from reserves (approx 25%) due to negative price revisions. All of it in the EFS which does not suffer a price differential anywhere near as large as Bakken producers.

There's a lot more in that report related to F&D costs which helps determine the capital efficiency but its hard to make up those "lost" barrels.

Anyway, I hope SSN provides as useful a Reserves Report.

GFTA.

SSN Price at posting: 0.6¢ Sentiment: None Disclosure: Not Held
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0 Great analysis

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