Ann: Quarterly Activities and Cashflow Report, page-29

Updated my model for the new IP timings - assumes:

• 10 wells in Q2
  • 2 on 1 April as evidenced
  • 8 on 1 June (my assumption)
• 6 on 1 Sept (my assumption)
• 9
  on 1 Dec (my assumption)​

(My model assumes that that production only occurs the month after IP).​

I have also updated oil revenue based on $61.27 weighted average floor for 2019 from Q2 onwards. I have conservatively assumed all oil price revenue is based on the hedging floor price of $61.27 (even though only 80% of production is hedged) - so could be higher if oil continues on its current trajectory.​

The resultant impact to my model is shown below.

Note these assumptions / results may not be error free and subject to the usual caveats - conduct your own due diligence).




A few things of note:

• I have not constrained Q1 production by the capacity constraint  - my model predicts 15,100 boepd (therefore less the 2,000) is 13,100 which is slightly above what SEA achieved. My EBITDAX will need to be adjusted down by $3.0M - so my estimate is $41M for Q1.
• Q2 - Q4 shows EBITDAX of $41M, $53M and $58M - with total EBITDAX for 2019 at $197M (less the $3M, giving $194M) - this is higher than management's upper range of $180M
• My average production for 2019 is 15,459, Dec-19 run rate is 15,569, but the Jan-20 run rate is 26,261 (due to the 9 IP wells 1-Dec)

Given the higher production rates than expected, and assuming these continue I think that we could well be on track to overshoot guidance here. Interesting to see what @cmonaussie's model is predicting...

The revised assumptions (mainly the locking in of the $61.27 oil price) supports a $0.06 increase in share price (on my model anyway) - and that is with all oil in 2019 at $61.27 (which it is currently higher than).

Given SEA had mentioned (refer to earnings transcript) "We should be able to generate a bit of free cash flow in the second half of the year", I think that point of becoming cash sustaining is very fast approaching.

Having revised my model, I am even more confident of my holding. The interesting thing is my "intrinsic valuation" has increased, but importantly we have passed the peak debt drawdown (yes, technically this only occurs when we repay the $30M we drew down, but given hedging applies to 80% of production, it is almost improbable that SEA runs into issues here - unless the wells don't produce, or capex is not controlled).

Separately, May 1 (tomorrow) is the redetermination date of the revolver facility. Given where oil is, and SEA's hedges, and the Ryder 1P reserve report, I think we could see an increase to the revolver base (which then alleviates all liquidity risk)> This would give SEA a buffer to ramp up production, should oil prices (and subsequent hedging) warrant whilst still ensuring that it operates within its cash flows.

Hopefully, we could be on the cusp of reaping the rewards from being patient - As was the case with the BPT acquisition, once peak debt passes and the cash flows roll in, there was a healthy re-rating.

Although I was on holiday over Christmas, I will sleep much easier tonight - and I think it will only get nicer from here as further milestones are successfully delivered!