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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Madharry who wrote (39369)	9/21/2010 10:26:47 PM
From: Paul Senior	Read Replies (1) \| Respond to of 78742

Madharry, I'll link the latest presentation by SSN: samsonoilandgas.com With e&p companies, I guess there are at least four faiths that one must have for a commitment: 1. Faith in quality of management (operations experience) 2. Faith in the numbers management provides (How much is salesmanship and how much is unbiased, accurate analysis of facts) 3. Faith in the geographical formations 4. Faith in financial acumen. (deal-making skills by management (Acquiring leases cheaply enough. Then, can management get financing without destroying share-holder value). Without providing any personal knowledge, I can only say management seems competent and informative. The numbers management provides - those I can take only on faith. I have A lot of faith in the geological formations. Management has been very astute in acquiring land cheaply and selling parts off dear to fund projects. ===================== First of all we're talking about a dink company - there are 83.2M ADS shares, so market cap of company is $116M. There are 16.6M additional sh in options. Company has $70M in cash and $11M in debt. There may or may not be actual cash taxes to be paid on most of this cash which was acquired from a recent land sale. (There may also be a secondary cash receipt of $6M that subsequently was received by SSN.) SSN has a small (under 5%) override on revenues produced from the land sale, so there's quite a bit of investor interest to make sure whoever has bought the land (It's not been officially announced who the buyer is.) has financial and operating wherewithal to quickly commence drilling and hand over the override to SSN. Over time, given the number of wells that might be drilled and production flows off this land sale, these override monies can be significant. (Aside: I'm not sure of the contract terms-- whether the override is on gross production or net or some other fractional amount.) You will see in the presentation that SSN values itself near-term based on proved reserves at $1.82/sh (slide #30). They don't have or haven't published reserve estimates for their Niobrara Hawk Springs project. They assume that if it's as prolific as they expect, the value of SSN longer term (whenever that is) is $9.89/sh. (slide #31) Here's where somebody else took a swag at a current valuation: seekingalpha.com I suppose I could put in my numbers where I like to use fully-diluted shares, after tax amounts, and proved and possible reserves. Basically though it boils down to this for me: The company seems to be pretty good at making deals; the company is pretty good about keeping investors informed about what's going on; the company has land and the cash to drill on it. I'm a big bettor (well, for me) on Bakken, and also on Niobrara (a shale not much mentioned on SI). I assume as is typical of small e&p companies, IF there is potential commercial production of oil on its properties, and IF oil prices don't crater, and IF SSN has the necessary operational skills or partnering skills, then maybe SSN can realize some of the potential valuation numbers for it that are being written about.