Firstly, I hope you don't mind me pointing out that your nic has been registered for around 3 months and I do not recall you having commented on this stock before from any perspective. That coupled with your obvious knowledge of the sector makes me wonder about your motives for suddenly appearing on this thread.
Having said that you have made several valid points and I also believe that management has been too optimistic in its targeted production which has nowhere near lived up to expectations. Why? Is it because management misjudged the rapid natural decline? If so, we have not seen an explanation. "While steam injection can be used [to increase production], the gas to make it ain't cheap". I have wondered myself when the steam injection is intended to be applied and why it hasn't to date. However, I'm not sure that the cost of gas issue is the main one.
The administration cost issue and the cost of John Begg is something that I believe is also very valid. In my experience highly paid executives do not always deliver good outcomes. Better to have executives with large equity and low pay.
In relation to the production and field performance I think you have avoided commenting that the cost of these shallow wells to drain NSA is low and their track record of delivering successful wells is good. In addition, while the natural decline has been faster than anticipated, these are still long life wells that should produce at moderate rates for years without additional capital cost (but perhaps lifting costs will be higher eg. steam).
McCool Ranch well's production limitations have been well documented by the company. There is water influx in the horizontal section which the company has tried unsuccessfully to remedy with a workover rig some time ago. They have since been waiting to get approvals for water disposal into certain existing old wells. That has now been received and production testing has commenced. I am prepared to await the outcome of those tests and their further proposals for this field.
In relation to Paris Valley, it is far too early to say what the outcome will be and the way I see it the company is not wildcat-ing, but appraising the field, which is low risk, not high risk as you have implied. There is absolutely zero value being attributed to such appraisal activities in the price in my opinion (no matter what the API of the crude is).
Finally, your comments about the price received net of costs etc are subject to whatever the POO may be from time to time and would have been substantially different 8 weeks ago.
I would observe that on a comparative basis to other oil juniors where there are few with real production, SAE looks cheap. It has a pipeline of projects, cash flow to fund them as well as develop them, a share buyback to invest surpluses to the benefit of shareholders, zero debt and no intention to raise capital which would dilute holders.
In relation to share price, I think the main issue holding the price back has been the sale of 18m shares held by Oceanic Management and the limited reserves the company presently has. The first issue is all but behind us and the second may be addressed by successful appraisal drilling of Paris Valley.
Your return comments are welcome.
regards DF
SAE Price at posting:
0.0¢ Sentiment: LT Buy Disclosure: Held
