Cmon & all, had a reply done earlier and somehow stuffed the post into cyberspace so will have another go.
Overall I agree the $26k/boed in itself doesn't tell us much about the future. It gives a number value of the cost the company has incurred to get from explorer to a production rate of around 1,000boed for 2015. A while back I found an article that suggested production can be valued at $90k/boed for production over 1 year and $50k/boed for production less than 1 year so in some way am trying to work out for myself how to substantiate those numbers and substantiate my own evaluations. This is a similar article but I can't find the original one atm Determining Value
I agree that using the total costs would be better, if we include the fx losses I get total cost of $42,873 per 2015 f'cast boed rate, if we include 2008 market cap (to reflect prior costs incurred - I'm too lazy to go back further) we get $82,874/boed. A possible theory could be that a $90k/boed is therefore reflective of the coy value as that is close to the cost value to develop the assets to current position. Assumption is that that value is what someone would have to pay to go from explorer to steady state producer or alternatively purchase the production (ie using SSN as a guide). Higher value may therefore be due to potential from reserves?
This is a revised summary based on the numbers in my quarterly post fyi.
If the logic is consistently applied when benchmarking then any differences between coys should stick out and value opportunities/threats identified. Also how a company finances the development may change the numbers but either way an undercapitalised startup explorer that buys low cost acreage has dilution, farmouts or debt in the future so understanding how a few have done this provides a guide for analysing others and I think LT SSN shareholders have now a large insight into this process.
Ultimately I think the planning & work done reflected in the current quarterly was done years ago so always good to go back and make sure value is being met and this gives a different perspective on mgt performance. Usually I think the market judges mgt performance on SP but we can see with recent oil price that other things can effect this. Also there has been about $9m fx decline which is largely out of mgt control and any improvement here claw back some of those losses.
Once the Shut in wells are put in line we can update the cost to get a final view. Imo that would be close to steady state where for at least a year production stays stable. I could be way off here but just following a line of reasoning for my own understanding. Watching the Brad Pit movie "moneyball" encouraged the quest and worth watching if you have the time.
Sorry for the novel but hope it makes some sense, I appreciate your insight
Cheers
SSN Price at posting:
1.6¢ Sentiment: Hold Disclosure: Not Held
