Strong Buy, page-68

Hi tt, you don't have to convince me on how good some of these wells perform over the first 12 months of their lives. I also agree that a 25% IRR is good, but definitely not hitting the ball out of the park in the E&P space - doesn't take alot to see that 25% whittled away.

At the moment SEA is winning the battles (good individual well performances) but it's losing the war (unloved, no recognition, falling share price). Have to ask ourselves why that is the case, to me its predominately because of the amount of debt. IMO SEA is trading at a significant discount because of the perceived risk, E&P is a risky business with many variables that can turn against you very quickly. I just think SEA have put themselves in the position of not having any room to maneuver if one or some of those variables turn against them.

I was very close to buying in in May this year and was just waiting to see the first-quarter earnings presentation which was released on the 17 May, before pressing the button. As soon as those results came out the share price started to slide from 43 cents to 17 cents today, in that time oil has gone from $62 to $55, so SEA's issue during that time is not a falling oil price it's structural.

That first-quarter earnings presentation was a shock at the continued draw on debt and anticipated future draws on debt. At that time they had not announced the sale of Dimmit but even that sale hasn't reduced fears. In capital markets it's very much "horses for courses", what works in the US might not work here and vice versa. The minimum equity, high debt model just doesn't work here and SEA have misread the market's appetite on this, which is surprising given it's this management teams second or third try.

IMO the only thing that will make SEA share price go up (sustainably) is to demonstrate their ability to repay debt from cash flow and still maintain current production rates. If they can't do this they are dead in the water.