Hi Guys, just got this note from my colleagues. are they on drugs or is what they are saying true?
Investment case
The Reserves increase is encouraging and consistent with the Company’s
stated objective to grow at the bottom of the cycle to build critical mass thus
attracting corporate interest as oil prices rise. We remain somewhat sanguine
regarding the Dec Q production shortfall, noting that this was a result of timing.
As such, the barrels remain behind pipe and therefore will be delivered into
a strengthening commodity price. The stable Balance Sheet, rising oil price
and increasing production has significantly reduced fiscal risk enabling the
Company to prosper via a growth strategy that will benefit from what we view
to be a recovering oil thematic. This is overlain by increasing direct and indirect
corporate transactions, supporting a higher share price. We maintain our BUY
recommendation
Key points
SEA has provided an independent (by Ryder Scott Company LP) revised 1P
Reserve estimate:
-P reserves have increased to 33.8mmbboe (from 26.2mmbboe as at Dec 31,
2015 and 29mmbboe est per EZL last pub.);
-The Reserves apply NYMEX, strip pricing as at Dec 31, as well US$42.75/bbl
and US$2.49/mcf reference prices;
-Growth – particularly to Proved Undeveloped Reserves ie 37% – is primarily
a consequence of development activity through the Dec H as well as minor
acquisitions;
-The pre-tax PV9 NAV increases to US$357.8m (from US$270m);
-This is well ahead of the key asset coverage ratio test under the terms of its
Morgan Stanley Credit Agreement of 1.50 to 1.10 (ie US$288m);
-The PV10 of the Company’s 1P Reserves increases to US$340m (vs current
EV of US$328m);
-The market is clearly ascribing no value for SEA’s net 25mmbboe 2P
(Probable) Reserves or 135mmbboe 3P (Possible) Reserves;
-We have imputed the most recent guidance for CY’17 into our assumptions
and inc. the Reserves inc. Our Valuation remains $0.37/sh;
-We retain our $0.40/sh Price Target on account of our positive outlook for oil
prices.
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