Assessing possibility of an SEA sale, page-3

@Numberz here is a more thoughtful view of the EBITDAX puzzle. It has taken me longer than expected but in doing so the model actually comes to reasonable estimates for FY2019 which are

Production = 21,436 boped avg
EBITDAX = $259.264M


If folks haven't read the earnings transcript you should. Italics are quotes from that. There is a very detailed spreadsheet at the end that inputs the key assumptions - which is Q4 midpoint guidance of 14,500 boepd, 2019 guidance of between 21,000-22,000 boepd and using present EBITDAX margins and estimated Qtrly production growth rate to achieve the target. Many ways to skin the cat.

To give you an idea, the first important factor for SEA in achieving the forecast EBITDAX is production growth. For one thing more BOEs means that fixed cost reduce on a per/BoE basis. Second comes price received (which means after hedging. Good news/bad news scenario but it is risk management)

SEA view "We don't believe in drilling into hedges, so the hedging that we have protects wells where we've already committed capital to it. So if we haven't committed capital to a well, we haven't -- likely haven't hedged a significant portion of the production from it. If we did, if we had hedges that were in place on wells we haven't committed to, we would probably take the financial gain as opposed to drilling into it if the well didn't make sense at strip, when we're going to drill that well. "

That's important. In other words 2019 development plan could very easily change if the oil price downturn stays a little lower for longer than expected (once again). There are 6 wells to have spud between 19-Nov and 27-Nov. They would undoubtedly have gone ahead with them. It is the 35-40 wells in 2019 that become the test. SEA gave the earlier guidance "I will say, when we started looking at our budget, I think we're running a downside case for oil at $55 flat, and our base case at $60 and our upside at $65. So we're now obviously currently going to be running those a bit lower to protect the downside." Means expect a lower price per BoE but again lower costs so what you lose on the swings you make up on the roundabout with higher margin.

Model starts with HY'16 (audited) numbers. I'm really only interested in modelling the half years but have to use the Qtrs along the way.

We know the Q3 numbers and they are put in. Q4 production guidance was provided and input (the yellow box) as 14,500 boepd. Then the assumptions follow:
a. No change in product mix i.e. 65% oil, 21% gas and 14% NGL
b. Also know (as of Nov 15) the number of BO hedged and approx price and we can guesstimate the sopt avg and come up with a Qtrly avg for Oil (and NGL as a % of that)
c. From there we can estimate the overall ASP per BOE
d. SEA is noted the reduction in LOE ... I allowed a 10% overall improvement
e. Subtracting (d) from (c) gives the amount of EBITDAX per BoE
f. Using (e) EBITDAX for the Qtr is estimated by (e) x boe production

This is then repeated in Q1'19 and Q'20 with now an estimate for the increase in production from new wells while at the same time allowing for corporate decline of old wells (and the high rate of decline for the newly TIL'ed wells from Q3 & Q4 2108).

So that's it roughly speaking. Details below for those interested. DYOR. This is my opinion only given what I know, assumptions made and guidance.



Hope it makes sense.

Let me know if there you think there are errors or flawed logic to some of the values used.