Analyst update 18 Feb, page-9

Hi @Ghp1,

I think we are both in agreement that the best measure of accretive value to SEA is by reference to boe produced.

Below are my deconstructed estimates (which may not be error free and subject to the usual caveats - conduct your own due diligence) which should hopefully illustrate my point.

My model models each well which I have grouped as follows:

• Red box = Producing wells as at Dec-18
• Blue box = Already drilled wells that are expected to come on this year - I have assumed they only commence in March 2019
• Legacy wells
• 6 being drilled in Q1
• 6 drilled in Q2
• 6 drilled in Q3

The next table shows my estimated production profile (demarcated into those categories) and split by boe, mcf and then total boe (i.e. boe + mcf/6). This shows (based on my modelling anyway):

• The committed wells (i.e. last years plus 6 in Q1) may produce 7.1 million boe, plus potentially an additional 1.3 million boe (assuming another 6 in Q2 and Q3).
• In comparison, in 2018 "The Company’s cumulative net production for full year 2018 was approximately 3,700,000 Boe"
• This shows growth (based on the run rates and declines that I have assumed).

A

nother way to check - 2019 hedge is 1,070,000 boe + 1,157,000 boe + 3,372,000Mcf = 2.8 million boe - 50% hedged = 5.6 million boe - which is still significantly higher than the 3.7 million boe they produced last year

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So I guess our disagreement lies at this
"Last year 22 wells if they do 24 this year that’s not a lot of difference if you separate them without the follow on flow from the 22 wells into this year."

My declines rates are based on the SEA Investor Presentation 15 March 2018 (shown below for Live Oak). I have first plotted the curve as released by SEA shown below for Live Oak (page 31). I do this for each area and then take the IP that SEA announce and apply the decline rates of the curve below - no idea how accurate this is given SEAs IP rates are more than 50% higher than expected. My method therefore assumes cumulative production is increased, which is probably why my estimated production is higher than that reverse engineered from the hedge book.

Nonetheless, if we look at the curve below
First 12 months has average oil at 400 boepd, second 12 months its at 200 beopd (roughly half the rate in the first 12 months).

Therefore, I think the production this year would be the sum of the following parts:

• 24 wells this year which would match the production profile of the wells drilled last year; PLUS
• tails on the wells drilled last year

The chart below shows that the tail in the second 12 months is roughly half the rate of that achieved in the first 12 months - therefore we should expect last years production plus at least 50% (based on this scenario).

Accordingly, I still believe that if they simply continue to develop what they developed last year (which they are on track to based on Q1) - we should see growth in production by the quantum of the tails in production from last year - which could be around 50% - which is directly correlated to EBITDA (subject to oil price and costs as you pointed out)