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Saratoga Resources, Inc. Common Message Board

  • dibba69 dibba69 May 13, 2013 11:56 AM Flag

    1Q Earnings

    Seem to be about what was expected with the shut-ins and other production problems that were already known. Things look positive going forward numbers-wise and I think the company has a good, low-risk plan.

    Can't believe it traded for $2.67 at the open today, though. It'll probably be a while before the PPS breaks $2.50 with conviction.

    Sentiment: Buy

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    • The report and the conference call transcript, already up at SeekingAlpha, all look good to me. Although the production for Q1 was only 2563 BOE per day, Cooke said that production was already back up to 3,000 BOE daily as of today, due to the resolution of the Main Pass and the QQ24 well issues.

      As for the tubing replacements, he said,
      "We expect to begin seeing results in the form of production adds before the end of the second quarter and have targeted completion of the program by mid-third." That means about 4 months from now.

      He said that the Rocky well would be spudded around June 1 and should be completed in about a month, which means that we should know something there in 7 or 8 weeks. They are guessing 663 BOE per day for Rocky.

      They gave average realized price for oil as $110.92 for the quarter and $4.22 per Mcf for gas, and said their hedging program is currently $1.9 million in the money.

      Deep prospects and the Gulf leases will not be drilled this year, but they should have plenty of drilling prospects in Grand Bay.

      To me it looks very good, and I am puzzled as to why there is no movement in the stock. Maybe it takes investors a while to digest all of this. If investors want to wait 2 months to see what happens with Rocky, or 4 months to see how the tubing replacement works out, that is fine with me.

      But I think production could be 3300 BOE per day by mid year, and 4000 by year end. Of course, if they get drilling partners, the stock will really move. Another thing that would move SARA would be better financing, which I would think would be possible if the tubing replacement and Rocky improve cash flow. So I am very pleased with today's reports.

      I would love to hear the negative case, as I certainly did not anticipate Saratoga going to $2.10. So let me know the bear case.
      Ruellia

      • 1 Reply to diodia2000
      • Ruellia,
        Agree with your thoughts. I am long but reduced my position some last week as I anticipated lower than concensus earnings due to the 3rd party outage they communicated in Jan. I have not bought them back yet, but may do so based on the progress (or lack of) on the 1st horizontal well they look to spud in June (already permitted as per SONRIS). I will be looking at that closely to determin if I add back the shares.
        Like you, I believe the bad news behind them is factored in the current low stock price. They were at 3,500 bblse/day mid 2012 with plans to grow production to 5,000 bblse/day by the end of 2012. The hurricane and 3rd party outages through a monkey wrench into those plans. But, it seems they may have turned the corner and could grow production from the 3,000 bblse/day going forward. However, as with any E&P, there are certainly future risks (i.e. possible bear case):
        1) The horizontal well will be the biggest near term factor, IMO. This has the ability to get the production growth/day going and the EXXI horizontal well program that they are modeling after has done well on the shelf. However, EXXI has had one or two horizontals that did not go as well as planned (question asked on the call - they were too getting the horizontal too high in the reservoir in a low porosity/permeability section). The risk is that the SARA well either experiences a mechanical failure or does not perform as expected.
        2) Natural production declines and/or unplanned outages (i.e late summer/early fall hurricane season) continue to impact production volumes causing further balance sheet deteriation. I like the fact that cash balances increased $2+ million since the end of the 1st Qtr. However, the 4th & 1st Qtr shortfalls had them adding new debt and I don't think they have much more leeway in that area. They must operate within cash flow to build production volumes, IMO. Any unplanned disruptions would severely impact their ability to do that.
        Even so, I'm bullish on SARA

 
SARA
0.17960.0000(0.00%)Aug 6 3:59 PMEDT