Ann: Investor Presentation, page-47

MM,

At the risk of coming into the discussion a little late and noting Confucius, its also true the a map is only useful if you know where you are. My map and starting point is the balance sheet (which means 31/12/2018 is last audited financials available). And the balance sheet equation of TA = TL + SE or even simpler A = D + E (Assets = Debt + Equity)
All numbers US$
On this starting basis:
Total Assets = $802.079M
Total Liabilities = $408.704M
Shareholder Equity = $393.375M

While the Market Value of Equity (MVE) is used in determining Enterprise Value for instance, it is not used in determining the "Equity" in the company. Thus in SEA case the Debt to Equity ratio (that a banker looks at) is pretty close to 1:1 (actually 1.04:1 ...or $1.04 of Debt for every $1 of equity ... pretty balanced IMO)

A banker is also looking at collateral value ... and for them it is cash generating asset ... and therefore it would be PDP as everything else required capital to get cash to be generated.

And so raising $30-$50M in new equity (can I use a mid point of $40M) raises the "Equity" in the company by $40M simply by raising the "Asset" (cash on hand) by $40M. It has changed D/E to 0.94:1 .... not all that material IMO.

The market has discounted the "equity" invested in the company to present around the $110M. The argument is presented is "I can buy $3.93 for $1.1"as that is the market rate.

Price is what you pay and value is what you get (same fella you're quoting wrt to EBITDA). What you get when you buy Equity is the Net Assets (i.e. if A = D + E then E = A - D). And since the debt is actually known (don't think any of SEA is traded so there is no market value of debt equivalent) this is obviously our equity. So what makes up "Net Assets?" Well clearly it is predominantly made up of "Development and Production Assets" of $633.400M. Now it's a little difficult to dismantle but SEA Reserves report gives 1P PV10 of $1,110 and ~30% is PDP ... so call it $330M ...

We diverge substantially if the "value" of the assets purchased is $330M (which technically makes Equity near worthless). We been engaged in discussion if say we wrote down the value of Total Assets by $79,470 which is the amount on balance sheet for "Evaluation and Exploration Assets". Doing that reduces Equity by same amount to now $313.905M and now D/E is more like $1.30 of Debt for every $1 of Equity. Still comfortable but getting close to the $1.50 mark where caution is needed (and above 2:1 tread carefully).

That takes care of the balance sheet part.

Next comes Income Statement. I agree that EBITDA is not a great measurement per se ... not GAAP either. However, the context of its use is important. O&G E&P is a capital intensive industry (so are Telcos, Utlilities, Pipelines, anythng with big infrastructure spending). EBITDA is useful to understand the earnings generating capability of the asset.

This is why we (me and TT in particular) have spent a lot of time understanding the Capex spend and the split between maintenance capex and growth capex and the relationship to operating free cash flow. Declines are a fact of life in E&P, even in conventional producing assets. They can NEVER stop drilling either. The difference is whether its short cycle or long cycle capital efficiency ... shale is short cycle and conventional tends to be long cycle (ask Woodside or Santos about that. Ask why COP (ConocoPhillips), CVX (Chevron) and XOM (ExxonMobil) have made enormous investments in short cycle capital projects ... mostly shale investments).

There is much more to the story than fracking disaster stories.

As always though ... DYOR and fact check everything.