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Well I'm open to you explaining how that is the case, as the financials would seem to indicate differently.
jog on
duc
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).
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.
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.
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.
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.
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.
So much has changed during those years. Different land, different operations. Apples and oranges.
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.
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.
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
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.
(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
@SdajiiInteresting.
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.
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
Just considered lessons learnt on SEA is like saving money towards education not taught in Harvard.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.
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