I caught up with a friend who spoke with SXY and passed on his notes from the meeting, which I am sharing below.
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Spoke to SXY briefly today about the following:
- Assets
- Financing
- Hedging Strategy
Assets
Key information on SXY's assets:
- Project Atlas - considered Tier I acreage – with potential for 100 wells. It is SXY's preference to develop these first. Steady state run rate expected 0.4TJ/day/well.
- Western Surat Gas Project (WSGP) - Considered Tier II acreage with potential for 420 wells. SXY may deploy some capital to these wells. Steady state run-rate of circa 0.4TJ/day/well expected.
- Cooper Basin (JV?) - drilling 2 non-exploratory wells between now and June.
- Processing plant - considering a 30TJ plant which would add circa $50m capex.
The 30 wells that were recently drilled in WSGP are expected to steadily increase to circa 0.4TJ/day = 12TJ/day as they resolve the teething issues (which were a result of SXY trying different ways to optimise well performance for next phase).
Financing
SXY are looking to source between $150M - $200M to fund 100 Atlas wells + the potential processing plant. Without the processing plant the requirement is likely to be around lower range. Looking to source via debt, competitively either via banks or EIG.
Hedging Strategy
The hedging strategy is currently in play until June-19, with downside protection below $55-$60 USD (but no currency hedge) to be able to cover fixed admin costs.
Back of Envelope Val
- 1 million barrels of oil = 6117 TJ
- 100 Atlas wells = 44TJ/day = 16k TJ/annum
- 30 WSGP wells = 12TJ/day = 4.4k TJ/annum
20,400 TJ = 3.3 mmboe
@100 AUD =$330m
Assume 50% margin = $115m
10x multiple = $1,150m less $200m capex =$1,000m /1,440m shares
Giving $0.70 val, further upside from the WSGP wells.
Price Catalysts
- Execution of gas sale contracts (for which they've already received interest).
- Environmental approvals for Project Atlas.
- Resolution of teething issues with WSGP wells and improvement in well production rate.
- Securing of financing solution.
- Release of information pertaining to next phase of drilling post financing solution
On this basis, I will continue to add on any short-term pricing weakness.
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