Take a deep breath - prepare yourselves for the volatility that naturally occurs when you own an interest in a business which is a "price taker" and not a "price maker". SEA does not control the price of oil but they can (and are) managing the price they ultimately receive and how much to produce and how much to have ready to produce when the price ultimately recovers - question is time.
That snippet of the Morgan's report confirms (for me anyway) my own research numbers. Earlier I posted (SEC Pricing thread) for the scenario
1) D&C delayed for H1'19 while price of oil hovers around $50 avg
2) D&C complete 16 wells to maintain what was approx annual flat production (this is double the flat production pace of 4 wells/Qtr originally) as oil has now risen steadily to avg $55 in H2
Note it was 16 wells (Morgans talking 16 - 18 wells) and with that program they could still claim growth in production, EBITDAX and (maybe) NAV.
2018 Q4 avg of 14,500 boepd
2018 avg at 9,940 boepd (roughly).
Then for half year in 2019,mgmt would talk of trailing twelve month (TTM) avg ...
11,150 boepd (June 2019 TTM) AN INCREASE from prior TTM of 9,940 boepd
13,208 boped for the 2019 FY average ... yet another increase.
And better yet, Q4'19 average clocks in at 17,466 boped which (remarkably) is another increase over Q4'18 record of 14,500 boepd.
Approximately $151M in adjusted EBITDAX and drops to approx $249M in revenue.
So it can be done. Even in the unlikely (IMO) of $40 oil (can't believe they think that given earlier views) it depends on how long that lasts. If I model that scenario as
1) D&C delayed for H1'19 while price of oil hovers around $40 avg
2) D&C complete 16 wells to maintain what was approx annual flat production (this is double the flat production pace of 4 wells/Qtr originally) as oil has now risen steadily to avg $55 in H2
I still get $141M in adjusted EBITDAX and drops to approx $232M in revenue.
It is the hedges that protect them ... but that lasts only 2019. By delaying D&C for 6 months for an assuming recovery even if it is only to $55 (and I talking ASP not WTI benchmark) they can still grow (slowly) without "destroying" the business now in current Qtrs and also future year because new hedges (at $40 oil) wont be terribly useful. This is because they don't have to drill now (HBP acreage giving optionality on which areas to develop) and they have actually taken a portfolio approach to hedging current production (the flat case effectively) and an assurance that continues when capital is committed to drilling.
It may be that SEA is in an enviable position at the moment (and being totally transparent I'd buy more of this presently than I would Lonestar). Of course if you are long oil (and not shale) then buy oil futures and hedge on your own.
You could almost say SEA is being mispriced, relative to its peers, unless there is something not fully disclosed.
JIMHO ... not advice and numbers quoted are mine - so no guarantee of being error free etc.
GLTA - time to play defense again.
