Below are a few of the “inconsistencies” that are being unearthed. A few in these in isolation would be unsettling, but compounded with the share price fall and I think it warrants further investigation, based on the following sources (SEA announcements), with excerpts:
Eagle Ford Acquisition and Equity Raising -15 March 2018
Investor Presentation – 11 March 2019
Audited Reserve Report – 11 March 2019
Fourth Quarter and Full Year 2018 Earnings Presentation - 28 March 2019
First Quarter 2019 Earnings Presentation - 17 May 2019
Quarterly Activities and Cashflow Report -31 July 2019
Without any disrespect to Cmon, MMP, (even I had a model) with assumptions pertaining to the decline rates of wells. What good are assumptions (that include uncertainty), when there is actual data (point 6/7 below) that would supercede these assumptions, and most likely equate to the implied assumption priced into the current equity valuation.
Valuation Inconsistencies
On 15 March 2018, SEA reported Implied Gross EUR (Mboe) of 608, 474, 724 for the Live Oak, Atascosa and McMullen areas, respectively.
On 15 March 2019, these decreased significantly to 412, 435 and 391 Mboe without offering any explanation whatsoever.
Even more peculiar, is that in Morgan’s most recent valuation (as shared by Chris6) they ascribe EUR of 559, 406, and 787. Does anyone have any idea where on earth these numbers come from, and why have they not factored in the reduction in EUR that SEA apply (Mcmullen is 391 according to SEA, 787 as per Morgan’s). No wonder their valuation is $1.28 when the share price is sub $0.20…
On 15 March 2019, SEA indicate capex spend per well of between $5.0M (Live Oak) and $7.2M (La Salle). The majority of SEA’s wells occurred in Live Oak, Atascosa and Mcmullen – capital cost of $5.0M, $5.2M and $5.5M. In 2018 SEA finished 23 wells + 4 DUC for a capital cost of $176M – including the DUCs gives an average cost of $6.5M – significantly above the $5.0-$5.5M range.
Good news, 1P reserves increase from 87.8 mmboe to 93.2 mmboe, and 1P PV10 increase from $650M to $1,110M (but this is based on WTI $66, whereas WTI is actually at $55). Strangely, SEA have not reported on 2P reserves in 2019.
Now the most concerning point of all – in quarter 2, despite the addition of 6 new wells for 60 days (at the peak of their production profile), oil sales declined from 8,365 bopd in Q1 to 8,195 bopd in Q2. Given the current sentiment regarding shale, and importantly the fear of excessive decline rates, this is alarming. Given the other issues above, I think transparency is the key here. I have been a believer in Eric / SEA, and for that have suffered a daily hit on my portfolio. IFFF there is data that provides some justification to this decline (despite the addition of 6 new wells), then the absolute least the long term shareholders deserve is the disclosure of this information showing our schedule of 31 wells with:
Current production rate
Cumulative production rate
Finally, Eric has been very responsive to all my queries in the past, and has suddenly gone cold turkey when poised regarding the schedule of production data. This is utterly disgraceful. The market is already onto it, it is just the long term shareholders (that have stood by him) whose wealth is now being destroyed with each passing day.
Rant over – but unfortunately, these (point 6/7 especially) are the reasons I think we are soon going to see sub 15c, and maybe even sub 10c….
If we have a 5% vote on here, we should call a special meeting and have this information disclosed to us. No more of this death by 1,000 cuts - I have had enough. Just disclose what is going on already!!!
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SEA Price at posting:
17.5¢ Sentiment: Hold Disclosure: Held
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