senex buy opportunity, page-12

V@Value21

Sorry should have started with a welcome aboard...

Dont take what i said personally its a discussion thats all and im very passionate about stocks being focused on shareholder value, not focused on appeasing people or trying to please everyone. Capital hungry stocks with massive acreages desperately need every cent. If SXY acreage was half the size i wouldnt be so concerned. But most this acreage is basically dirt on a promise till they prove otherwise. In fact its a huge financial liability if you dont develop and value add to it.... So its a top priority that they turn a massive acreage of little value into a massive acreage of better value....and the only way to do that is to spend a lot of CAPEX....

This bits for everyone:
On the question of value this stock wont appreciate much on value because profit is restricted by exploration and development costs. Its a balancing act. Spend tooo much on development and the acreage remains of low value , but the cash flow goes up. Spend too much on exploration and the cash flow goes down.... And its damn hard to smooth it out when you have such a huge acreage position relative to cash flows..

So every decision thats made needs to be weighed up. Can we make more value by drilling a well that looks like it will flow 300bopd or can we add more value by drilling some exploratory wells and bagging some resources at x$ per 2P or 2C....

And you can bet thats exactly how they review each decision. to come up with this years CAPEX and to prioritize what order its done in...

So dont rely on cash flow alone in your valuations as there are two parts to these businesses ...the production side and the resource side.... Often the resource side costs money and doesnt show in cash flow for up to a couple of years or more...

eg if they have a PEL etc of 1 million acres worth $30 per acre they have $30M on the balance sheet.. and they devlop it with some exploration that reduces cash at bank by $15M
The value arrives when they find future producers and plug them. Find enough and the acreage goes up to say $70 per acre.... So you spent $15M but added $40M value, yet it robbed the cash flow via CAPEX....and may not show in revenue until they develop the field in the following year...

For the same reason, all capital raisings are not bad.. If they found enough producers to put in the infrastructure to market and its economic to do so then doing a cap raising for say $50M thats going to add $90M revenue at say $30M per year for 3 years and then $10M for another 2 years, this can make some of these companies look like shockers, just as they are in the cacoon becoming butterflies...

Generally by this size these things begin to get smoothed out. But given the size of SXY acerage they are very much in the stage where they will constantly look like butterflies then moths as cash flow changes and CAPEX hides future revenues and revenue hides future CAPEX costs...

Be prepared for a roller coaster of sorts hopefully in an uphill trajectory.