Cmon & all, some good points worth considering. I've read a number of times and some good leads which will help in general to further understand O&G.
The Backen discount makes sense - Looking at June/Sept Qtrs company had realised price $92.06 & $86.51. My calc for Wti avg June & Sept was $103.14 & $97.57 and the difference is $11.08 which fits in the range you mentioned. Currently Wti is $63.13 which using $11 would give Dec Qtr avg $74.41 and my estimated realised price after BD of about $63.33.
Re Hedging: I note in the Sept 10Q almost $800k recognized for Hedge gain when marked to market. Looks like an actg jnl rather than actual settlement so I would expect similar to be done in Dec accounts but could be wrong. Rough numbers I think net Dec qtr prodn receipts should cover admin costs with small surplus but the mark to market of hedge's would add to the result & meet the Debt/EBITDAX requirement. If the hedge's can be rolled into 2015 that would be good as could deliver better value and protection if OP continues downward. I don't think the oil is physically delivered into the hedge so unless settled they could possibly be rolled at a cost if worthwhile.
I think the lifting costs include some Royalty & taxes so the $29 could be lower as the lower OP would also flow into these costs. I think the royalty/taxes are about 25% so a $30 OP drop would reduce inflows but also outflows with net of around $23/bbl. No doubt the state depts. and people getting the royalty will also be feeling the pinch atm also.
Costs: There are likely to be some cost efficiencies and economies of scale once all the shut-in and new wells are bought back in line. Also possibly the phasing could bring the most profitable on line first to offset the lower OP. Getting production costs to the lowest possible level imo provide the best natural hedge for lower prices and ensure if price recovers more $$ hit the bottom line in the future. The pad drilling has probably already delivered some Capex savings but those are hard to quantify and just get buried in the exploration & development assets in the balance sheet.
Re value I think the market is not interested in the sector and this is the largest contributor to many O&G SP. Fwiw imo SSN have done a pretty good job this year as many wells drilled and some hedge cover put in place. The underlying results in June/Sept qtrly were good and compared favourably to many others but the move from explorer to producer is tough going, At present a $50k/boed valuation seems most applicable and on that the 1261 boed in the presentation less debt would give value of $47m - $15.5 = $31.2m which is where it's at. Everyone looks at these things differently but atm reserves and future plans don't seem to have much value given. Any change in mkt sentiment, OP, news in the new year could help a rerate to a higher per bbl rate but across the sector that doesn't look likely for a while.
That'll do, these are only my opinions & welcome any corrections
GLTA
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