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Do my eyes deceive????, page-18

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cmonaussie

11,263 Posts.

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07/01/16

19:51

Post #: 16751557
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Originally posted by cmonaussie ↑

Great question Buc!

I don't have a calculated price, but it falls apart (for MOB and ergo Samson) when the price deck they use make producing oil no longer economic and therefore the Reserves don't count.

BUT, there is a bit of sleight of hand IMO that pushes this deal through.

1. I don't think MOB will be too fussed about the PUD and deploying capital for that would not be in 2016.

2. SSN has run a stressed deck using NYMEX price $5-$10 lower price

3. It reads a little ambiguously at first, but the NPV10 value shown for PDP+PDNP is about $25.1M and oil pricing used in this estimate represents NYMEX WTI prices as at October 1st, adjusted for quality, transportation fees, and market differentials. The price used BEFORE ADJUSTMENTS for 2015 was $46.97, and so the stress test was smart.

4. That says to me they are paying $16.5M for NPV10 of $16.5M in 1p Reserves. Any bank should say no (you don't lend 100% of a home mortgage appraisal unless you are looking for trouble). HOWEVER, it's not quite that simple as the PDNP isn't providing revenue now but it soon will be with some small capital expense for recompletion.

5. The PDP is however providing revenue. Now just being overly optimistic for a moment, this additional revenue is "free" of SSN G&A costs (since it is fully assigned to existing production at present). So if WTI is $35/Bbl and the Bakken discount is say $10/Bbl then their realized price is $25/Bbl. Using a bit of a WAG on LOE+Taxes of $15-$18/Bbl then the argument is, there is somewhere between $7-$10 per Bbl of EBITDAX that is accretive to SSN. Using midpoint the argument is that equates to roughly and additional $556K of EBITDAX per Qtr

6. MOB has to come to party a bit too. Renegotiate the Debt/EBITDAX covenant to 4.5 for 2016 to give SSN best chance for success. Put the BB to $38M (so they can pull $2.5M for capital investment) which makes the EBITDAX target at 4.5 to be about $8.5M. If you make the assumption that total 2016 production averages 1,500 bopd for 2016 (current production less decline, acquired production less decline, acquired wells recompleted), that's about 550MBO. To get to that number you need a margin of approx $15.50/Bbl. MOB will of course have better data to make the decision.

That makes the realized oil price number somewhere between $30.50 - $33.50 using my view. Translating to WTI pricing its about $38 - $45 depending on your view of Bakken differential.

Hopefully the logic I'm using makes sense. WTI at $33 is probably damn close to MOB's threshold of pain (and mine).

Expand

Hey Buc,

Given the overwhelming positive market response in the affirmative to this deal, what would your view to SSN raising equity capital ... 20% placement at current prices raises approx $3M. Might make MOB feel better? How many holders would participate I wonder.

SSN Price at posting: 0.7¢ Sentiment: None Disclosure: Not Held
1 Upvote

0 Great analysis

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Do my eyes deceive????, page-18

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