SEA - Sundance Energy Australia

[ducati916]

SEA is able to sell oil very profitably at well below the current price. A lot of what you've said indicates you completely misunderstand the economics of the situation. If we just look at the cost of production, it's well below $55 or even the $30 suggested by barney (an exact figure is difficult to calculate due to varying well performance a few unknowns).

Well I'm open to you explaining how that is the case, as the financials would seem to indicate differently.

jog on
duc

 

[Knobby22]

All at SEA and in the POO.

Couldn't resist saying that for a laugh.
Haven't looked at the company.

 

[Knobby22]

Thought I better have a glance.
I note the analyst is predicting a PE ratio of 2.5 for 2020. Lots of wells going online.
Company going to transfer to US stock market.

It appears to me that they may be hitting a purple patch however I owned a similar company once and it's in a very competitive market and the locals always seem to somehow take a lot of the profit.

Probably worth seeing how it goes. Good luck.

 

[barney]

I'm not great at reading balance sheets etc …. I've extracted the info below from the Company's recent Presentation. Obviously being a presentation, the Co. will be putting their best foot forward, but assuming they are being honest with their preso ……

(Quick assessment in my words)

There are positives (higher earnings last FY .. well hedged into end 2020 .. low per barrel costs.)

The main negative is the debt (current net debt $354million)

The Co. states they will be Cash Flow neutral/positive 2nd half 2019

(Condensed directly from the Co. presentation below)

Full-cycle break even costs of ~$30.00 per boe allows production and EBITDA growth under various oil price scenarios

Free Cash Flow generation expected in 2H19

• Average daily sales volumes of 13,898 boe/d, at top end of public guidance

• Cash Operating Costs per Boe are 35% lower than 2Q18 and 16% lower than 1Q19

• Robust hedge book protects ~8,000 bopd (81% of forecast production) at ~$60/bbl floor for remainder of 2019; 2020 crude hedges protects 5,605 bopd at ~$57/bbl floor

$50 MM of available short term liquidity on balance sheet(4) before Dimmit proceeds

• Announced Dimmit sale for $29.5MM purchase price adds further liquidity upon close

• Sundance has reached peak forecast net debt, with reduction forecasted for 4Q19 • Debt-to-Consensus 2019 EBITDAX of 2.3x; no debt maturities until 4Q 2022

Adjusted EBITDAX of $33.7 MM, a ~230% year-over-year increase compared to 2Q18

 

[Sdajii]

What you said is that SEA would be sitting circa $1/$2 share: this price implies that it is profitable, because currently it is not profitable and hasn't been for a number of years.

That isn't the implication at all. It's possible to be profitable now and more profitable at higher sale prices, right? If it was currently operating by not only dealing with a massive debt but also sitting on assets actively operating at a loss, the company would have a market cap of close to zero rather than over a hundred million bucks. I'm puzzled that you can make such a huge misunderstanding.

The last time SEA showed a profit was 2014. In 2014 POO was up in the $90/$100 range. Since then nothing but significant losses.

Since 2015 POO has ranged a bit, but call it a midpoint of $60. Still losses.

So much has changed during those years. Different land, different operations. Apples and oranges.

One thing SEA has been good at is buying assets/land, proving them up and selling them at much higher prices. In one case they sold a relatively small percentage of their assets for more than their total market cap! They haven't been great at being long term drillers/operators, that's true.

You seem to be confused about how the cashflow situation exists in the current situation though. If you were to suddenly pay off all their debt, SEA would be making a very nice profit. The only issue is that currently approximately all of the net profits are going to servicing company expenses *and debt repayments*, the debt repayments being considerable.

Perhaps your inability to grasp this concept is very common, which would go a long way in explaining the current share price.

Can I ask you, what would you think of SEA if they announced they were cashflow positive?

My inference was [based on your analysis] that to reach a share price of $1/$2, which is significantly higher than currently, would require that SEA be profitable and that POO would need to be $65+ to make it profitable.

You assume too much and have a vivid imagination. I merely estimated that at that WTI price, that would be the current share price. If the oil price stays exactly where it is now, eventually SEA could quite possibly get up around $1, but that would take some time (that share price would be in the future, not now). If we had seen WTI at $65 for the last six months, I estimate we'd have that share price around now.

But given that POO has been around that mark for a year or so and SEA is still bleeding, I'm not convinced that POO is the only issue: hence my laundry list of issues, none of which you considered important enough to respond to.

SEA isn't exactly bleeding. Even without an increase in WTI prices, SEA is on target to start turning a profit, reducing debt, and eventually bringing us into the black with profit still continuing. At the current WTI price that will take a long time, and it will take a long time for the market to take notice or care.

 

[ducati916]

That isn't the implication at all. It's possible to be profitable now and more profitable at higher sale prices, right? If it was currently operating by not only dealing with a massive debt but also sitting on assets actively operating at a loss, the company would have a market cap of close to zero rather than over a hundred million bucks. I'm puzzled that you can make such a huge misunderstanding.

I would suggest that it is. If you look at pages 22/23 on this thread, when the share-price was moving higher in early 2014 to mid 2014, it was on earnings and the POO was also circa $100.

Then POO collapsed. As did the earnings of SEA. As POO settled lower, SEA has had nothing but losses since.

Therefore it is a reasonable inference for the share price to again hit $1+, the POO needs to be high enough to generate earnings.

jog on
duc

 

[ducati916]

So much has changed during those years. Different land, different operations. Apples and oranges.

True, but some things haven't, viz continuing losses.

jog on
duc

 

[ducati916]

You seem to be confused about how the cashflow situation exists in the current situation though. If you were to suddenly pay off all their debt, SEA would be making a very nice profit. The only issue is that currently approximately all of the net profits are going to servicing company expenses *and debt repayments*, the debt repayments being considerable.

Perhaps your inability to grasp this concept is very common, which would go a long way in explaining the current share price.

Actually, according to the statements, that may not actually be the case. Which is why I raised the 'depreciation' issue.

jog on
duc

 

[ducati916]

SEA isn't exactly bleeding. Even without an increase in WTI prices, SEA is on target to start turning a profit, reducing debt, and eventually bringing us into the black with profit still continuing. At the current WTI price that will take a long time, and it will take a long time for the market to take notice or care.

Well that may well be true. Once the latest statement comes out we'll see. I am however sceptical. The 2018 figures were just about their worst so far.

jog on
duc

 

[ducati916]

Can I ask you, what would you think of SEA if they announced they were cashflow positive?

I'd be much more confident in putting money into the stock.

jog on
duc

 

[Sdajii]

I'd be much more confident in putting money into the stock.

jog on
duc

Interesting.

So are you unaware of them being about to become cashflow positive, even including debt repayments, or do you not believe the figures as presented? Unless something drastic happens (even if the price of oil drops fairly considerably), they're set to become cashflow positive before the end of the year, possibly this quarter.

If you are representative of a significant proportion of the market, the cashflow positive announcement, which should be one of the next two quarterlies, could bring quite a rerate.

 

[barney]

If you are representative of a significant proportion of the market, the cashflow positive announcement, which should be one of the next two quarterlies, could bring quite a rerate.

Its up 20% from its lows this week ... Volume only modest but at least its up.

A lot of Oilers getting attention at the moment so the Sector looks to be warming up ….

 

[qldfrog]

Yes covered some of the initial loss yesterday
Wait and see

 

[ducati916]

(Condensed directly from the Co. presentation below)

Full-cycle break even costs of ~$30.00 per boe allows production and EBITDA growth under various oil price scenarios

Free Cash Flow generation expected in 2H19

• Average daily sales volumes of 13,898 boe/d, at top end of public guidance

• Cash Operating Costs per Boe are 35% lower than 2Q18 and 16% lower than 1Q19

• Robust hedge book protects ~8,000 bopd (81% of forecast production) at ~$60/bbl floor for remainder of 2019; 2020 crude hedges protects 5,605 bopd at ~$57/bbl floor

$50 MM of available short term liquidity on balance sheet(4) before Dimmit proceeds

• Announced Dimmit sale for $29.5MM purchase price adds further liquidity upon close

• Sundance has reached peak forecast net debt, with reduction forecasted for 4Q19 • Debt-to-Consensus 2019 EBITDAX of 2.3x; no debt maturities until 4Q 2022

Adjusted EBITDAX of $33.7 MM, a ~230% year-over-year increase compared to 2Q18

The immediate issue for me is the EBITDAX, which is earnings without:

(i) interest; and
(ii) depreciation/depletion

Further, what about capital expenditures? What (if any) guidance has been provided on this?

Those 3 costs (unaccounted for) will (very likely) swallow that $33M projection. Therefore, SEA will (likely) be showing another net loss.

The sale of the asset will provide some cash which lowers the insolvency issue.

Overall, still pretty risky. If it works out, yes, I agree the returns (should) make an investment (punt) at this point very good.

jog on
duc

 

[Miner]

Interesting.

So are you unaware of them being about to become cashflow positive, even including debt repayments, or do you not believe the figures as presented? Unless something drastic happens (even if the price of oil drops fairly considerably), they're set to become cashflow positive before the end of the year, possibly this quarter.

If you are representative of a significant proportion of the market, the cashflow positive announcement, which should be one of the next two quarterlies, could bring quite a rerate.

@Sdajii
Hope you would see the thread published by @peter2 just now
Weekly scans: Charts that interest me.
Weekly consolidations (wait for the BO): GMA>3.20, IMD>1.40, AD8>7.65, ECX>1.65,
Weekly bullish bars: DCG, PPE, SEA (in the bargain bin),

 

[Sdajii]

@Sdajii
Hope you would see the thread published by @peter2 just now
Weekly scans: Charts that interest me.
Weekly consolidations (wait for the BO): GMA>3.20, IMD>1.40, AD8>7.65, ECX>1.65,
Weekly bullish bars: DCG, PPE, SEA (in the bargain bin),

He says don't fall for rubbish in the bargain bin then in the same post says SEA is looking good and currently is in the bargain bin?

Tomorrow should be interesting, SEA was up on Friday but then oil took a hit after the ASX closed. We'll see where oil opens tomorrow and what SEA does.

 

[peter2]

I thought you may have noticed that contradiction. There's been some increased demand in SEA over the past week. One bullish weekly bar doesn't change the downtrend and there's been a few false starts in the recent past. I do have an edge trading reversals and I'm very tempted by SEA at 0.175 with a tight iSL. The R:R at this price is attractive provided I minimise the downside exposure.

 

[Sdajii]

I thought you may have noticed that contradiction. There's been some increased demand in SEA over the past week. One bullish weekly bar doesn't change the downtrend and there's been a few false starts in the recent past. I do have an edge trading reversals and I'm very tempted by SEA at 0.175 with a tight iSL. The R:R at this price is attractive provided I minimise the downside exposure.

View attachment 97237

Yeah, pretty silly contradiction there! Having said that, I agree with his intended message.

It's true, one week of bullish movement doesn't guarantee a downtrend has ended, but all things considered it's pretty easy to imagine things improving from here. If I wasn't having my worst financial year in over a decade and I had some available funds I'd be buying up more now. But hey, SEA had a big hand in giving me my worst financial year in over a decade, so what can I say? Haha.

 

[Miner]

Yeah, pretty silly contradiction there! Having said that, I agree with his intended message.

It's true, one week of bullish movement doesn't guarantee a downtrend has ended, but all things considered it's pretty easy to imagine things improving from here. If I wasn't having my worst financial year in over a decade and I had some available funds I'd be buying up more now. But hey, SEA had a big hand in giving me my worst financial year in over a decade, so what can I say? Haha.

Just considered lessons learnt on SEA is like saving money towards education not taught in Harvard.
You will feel better then

 

[barney]

A lot of the recent gains wiped today. SEA looking to relocate their listing to the Nasdaq and terminate the ASX listing. Directors like it … the market didn't apparently. Not sure how this will affect S/H's … What do you guys think about the plans?