Price Sensitivity Test

Below is the output of some analysis I was doing over the weekend to determine the overall sensitivity of selected stocks to WTI index price - taking into account location discount/premium, hedging and their cash costs. In the end I'm to get a feel for EBITDA and Discretionary Cash Flow.

Each stock has the same Stressed price deck - which is WTI $50 & $3 Gas for all 4 Qtrs of 2015 and a Recovery price deck with has WTI at $55 Q1 and increasing $65, $75, $85 in Q2/3/4. Gas goes $3, $3.25, $3.5 & $3.75. Though its starting to look more and more like the Recovery pricing is unlikely.

All $$$ are US$ - using the US market Cap from Fridays close (OTC mkt where needed).

Debt is always shown as "Net Debt" - Used the known drawn debt as starting point plus est closing cash for Q4 and the Net Debt shown is the estimated debt remaining end 2015. For some that generate positive free cash flow it would show as a debt reduction (in reality it would be increased cash and debt likely stays same).

Hedging is taken into account from last filings of company. The companies with the best hedges are those that are stressed the least but do not perform quite as well in the Recovery scenario (why for example SEA does much better than LNR in Recovery but not as well with Stressed).

Production estimated from company filings of Q4 exit and any operations update (e.g. for SSN it would match the Qtr by Qtr 2015 estimate given in Nov). The objective was to end up with roughly the forecast 2015 average production.

I urge caution when looking at the Debt to Reserves multiples - particularly the NPV $ values. These are taken from company reports and are BACKWARD LOOKING - so this is the VERY BEST they will be as revisions will be coming from all the year end reporting.

I'll post into each forum the detailed spreadsheet for Recovery for LNR, SEA, SSN.  HK is there for interest of AKK holders - so many red flags on HK it may cause a running of the bulls in Houston (in the opposite direction).

Obviously the 2 closest are LNR and SEA which was driving the analysis (and why SN included). They are close in EV terms and in 2015 production (barring further updates where I would adjust accordingly). LNR has the edge in EBITDA valuation, SEA in production valuation. SEA has more manageable debt but neither in indebted. LNR has the better acreage - subjective I know but EFS offers superior returns to Mississippian/Woodford and that is borne out by SEA Capital program. Both look like good value - I hold LNR over SEA.

SSN yielded surprisingly good result - in context though the forward view has no Capex for 2015 and the potential for steep drop in 2016 on its production metrics. SSN does not appear to have any debt multiple issues (provided I have the estimates for 2015 costs correct given their level of production). Shows as "expensive" in Stressed and value in Recovery - primarily because of small amount of hedging so its a play on oil price recovery.

The lens is to try to look to what potentially happens thru to  end of 2015 based on what companies are telling us now.

Overall, SEA is probably showing the most resiliency. Also expect to see LNR further reduce capital budget (and maybe also SEA).



GLTA