So $10 drop in oil price from $66 to $56, drops PV10 from $811M (952M - 141M) by $422M.
I think the key thing though is that if oil price goes from $66 to $56 SEC PV10 assumes two things:
Projected production remains constant I.e. you keep producing (and drilling);
The new price is applied to all future production over the 5 year period.
In actual fact we know a couple of things are different (at $36 oil):
Majority of production over the next 2 years is hedged at $56 and then $50
Production profile changes (I.e we defer capex and production)
Oil is unlikely to be $36 over the entire 5 year period.
I accept $675M as the starting PV10 for $56 oil.
I don't think A fall below $56 is materially going to impact the PV10, so long as the price dip reverts to sustainable price within the period over we are hedged.
Just for argument sake, let's say oil reverts to $56 within the next 1 year.
The PV10 reduction from $675M would reduce by:
One year production at Lower price of oil (but we are hedged from this at $56 this year) so impact on PV10 is nil
Reduced production due to deferred capex (this won't be too significant compared to PV10).
So upon review, I think at $35 oil, so long as SNDE can convince the financiers that oil will revert to $50 / $55 before our hedges run out, the defense to our PV10 can be ssomewhat supported.
Whether they believe is another matter...
I am looking for demand in US to be at 18m in EIA report for week ending 15 May. If the report shows that, extrapolating gives current run rate on global oil demand loss to be less 10m. Which is a catalyst for a bounce to $40 Oil....
Next 4 hrs could tell us a lot
SEA Price at posting:
16.5¢ Sentiment: Buy Disclosure: Held
