Little bit surprised at the lack of any real upward momentum from this announcement - although I am fairly sure we all know why.
Here's my interpretation of what would otherwise be a very positive reserves upgrade report
1. Operating Costs are being reduced - so that's good (the quoted $22 was OAS but it does serve to illustrate how much "trimmed"SSN has become).
2. The PDNP conversion, which is probably close to finished by now will further improve SSN's all important PDP Reserve value.
3. The PUD (which accounts for about 43% of 1P total) is nice but requires $2.8M/well to unlock ... capital that SSN does not have AND has limited (if any) access to .... more on that in a bit
So this now gets back to the equity capital raising, asset sale, debt facility and covenants
a. The equity raised has been notified ... still appears though to be short of want MOB has as covenant.
b. The asset sale takes the debt down to $19M. I hope not but this appears a little too cute possibly. IT wont be well known, but the OCC (which is the bank regulator in the USA) has republished guidelines for O&G lending, conducts a Qtrly SNC review (and every loan over $20M is reviewed - hence the cute remark - but it may well be nothing).
c. The debt facility and covenants. Part of the new OCC guidelines is that any loan where EBITDAX is >4x is immediately "Classified" (as substandard at least). That means no more money being made available under the facility even though the amount of PDP Reserves value ($47M) would suggest otherwise.
That is why I think page 3, 1st paragraph is there. If SSN can get its EBITDAX ratio below 4x then life gets a bit easier. Hence the cost focus which helps but as we all know, higher oil prices solve this problem.
GFTA
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- Ann: June 30th Reserve Update-SSN.AX
Ann: June 30th Reserve Update-SSN.AX, page-4
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