Doubt he's short. Most brokers (with any ethics) wot allow margin accounts for those this naive. Sounds good on a Yahoo message board in the hindsight 20/20 mirror. I'll be patient and await the answer as to why he thinks SN won't be around in a year. Should be amusing.
marielys…US production will be cut, is being cut and will be cut further. Services are coming down rapidly. The break-even cost of oil is coming down rapidly and those with the balance sheets to survive will benefit greatly. OPEC member fiscal budgets (NONE) are balanced at this price oil. Sure…Saudi's have $700BB in reserve but $35-50BB is their deficit this year. S. Arabia exports nothing but oil. They have nothing to meaningfully contribute to the world to offset lower oil prices. Where is S. Arabia in 30 to 50 years?? The geo-political ramifications of lower oil prices alone will dictate higher prices in the future. As the saying goes…"the cure for lower oil prices is lower oil prices'. You…in the meantime…should take a break from watching minute to minute and check back in a year. It's going to be a very slow year in this space as the world adjusts.
Catarina and Palmetto are 35 and 60% at $60 oil and $3.75 gas. Sure oil is $48 today so drop the deck and adjust the numbers accordingly. Maybe it's 25 and 40% returns. Drop it to $30. Perhaps 10 and 20%.
NOW….drop services costs as oil continues to drop and adjust the return accordingly. Nobody talks about plummeting services costs. These wells are now $5mm, down from $7.5mm which began at $15mm!!! How soon people forget that oil never made it over $40 until 2004. Oil is almost EXACTLY the same price now as it was 10 years ago.
SN just explained in their press release that they have the ability to curb CapEx by more than half while increasing production YOY, not take on any debt and quietly sit on their inventory at 35 to 60% returns in the current environment. "Problem"????
That's a problem for 2021 Islandboy. There is no amortization or covenants on their debt between now and 2021.
marielys…although the delivery was a little harsh the advice from jdaugs is sound and you should heed it. Don't try to fool with options until you understand them. You might consult with the broker that placed your order. There are 2 sides…puts and calls but many variations. Don't get caught with a position you don't fully understand and understand what you are expecting before you take the position on. Good luck and be careful.
Start selling short calls marielys. Up 28% in a day is not a bad place to start. You can whittle your average down while taking in premium. Sure you may lose a little at a loss but if it goes back to a $6 handle you'll feel much better!
Cash is $596mm. Liquidity sits at $1.2mm all in. SN is hedged through 2015 at around $89 oil on upwards of 60% of production. There are huge gains on the hedges…they will not be written down…ask Harold Hamm at Continental. "Hedging program for 2015 is based on achieving $90 barrel price environment for 2015." LOL…hedges are at $90…not based on $90!!! THEY ARE HEDGES!! Oil could go to zero but delivery is at the price of the forward contract while the contract is in place. 2016 is the window where hedges come off. Services cost will have come down so hard that $50-70 my be the new norm. Palmetto works there.
Be worried about those needing to refi debt in the next 3 years at $50 oil!
Don't confuse the discussion of current balance sheet strength (relative to peers) as "constantly pumping" of SN. I don't own a share…yet. I have said repeatedly that they are all in trouble if oil persists at $30-40 for an extended period of time. Of course the company can still fail in that scenario. People have had questions about the decline and SN's ability to weather this storm. I looked at the SN balance sheet and those of relevant peers and offered that SN's balance sheet has liquidity and flexibility where others do not. Owing the debt regardless of to whom is a legitimate concern. Not being held hostage to onerous bank covenants is a huge advantage.
Just trying to point out the difference. Good luck to you on your holdings as well.
I said SN does not owe the banks anything and you disagreed. Until you can provide me with evidence that the revolver has been drawn I have to say you were wrong. SN does not owe banks currently. As a matter of fact the banks just raised the facility less than 2 months ago. I gave you the benefit of the doubt and suggested you misconstrued it. The money owed by SN is to bondholders and preferred…NOT banks as you questioned. Of course the debt counts but don't assume it's to banks with onerous restrictive covenants. There are no covenants on the bond debt and no Am schedule. I have no clue when they start tapping the revolver other than what the company reports. 2015 CapEx will come from cash and cash-flow from operations. No plans to tap the revolver anytime soon. Of course the stock has fallen for a reason…they all do. SN's balance sheet is much more flexible and cash laden than their peers. For this reason they will be around longer than most shale players in a sustained low oil environment. Think about CRZO having to re-fi $1bb+ in a 12% yield environment while SN has 6.125% of 2023 out there. GDP, HK, FST and SM will never make it.
mjh…SN is in an asset class of E&P (shale) that's horribly out of favor. Most hedge funds have mandated a sell on everything shale and it's tax selling season on top of that. SN has no debt coming due until 2021 so the cash will not go to debt repayment. It takes about $130mm annually to service the debt including the preferred which SN has the latitude to suspend the dividend if backed into a corner. Palmetto produces such prolific wells that it will work even at much lower oil. Catarina requires that 50 wells be drilled each year. If oil persisted at lower levels for an extended period of time SN could reduce their CapEx to roughly $4-500mm from $800+ now and ride the storm out for several years. It's because of the huge cash position and lack of debt coming due in the near term that they will survive long after many fail. GDP, HK, SM, FST are the weakest. Even CRZO has $1BB in debt coming due between now and 2018. If oil goes to $30-40 and stays there for many years they are all in trouble.
Yes I'm serious. SN has nothing drawn on it's credit facility. "$650 million borrowing base with an elected commitment of $300 million and $0 million drawn". Not sure how you could miss this or otherwise misconstrue it. It's clearly stated in every presentation. And by the way it's "you're" as in you are not "your".
Not sure SN wants that re-fi liability.
Pleaides...Relying on Yahoo is your prerogative. I would suggest relying on financials and company statements as they are held to a higher standard than Yahoo. Covenants have absolutely nothing to do with "speculation on my part" and everything to do with whether they actually exist or not. I reviewed the prospectus on the 2 debt issues long ago and can state with certainty that no restrictive covenants exist on the bond debt. Have you? Are you suggesting that you have "loan agreements" that suggest otherwise? Please review the bond documents and I'm sure you would agree that the speculation here is on your part…not mine. FYI…reserves are the basis for all SECURED debt not UNSECURED. Your comment makes absolutely no sense whatsoever ("reserves are the basis for all unsecured loans in the E&P patch"). If a loan is UNSECURED reserves (or any other asset for that matter) is meaningless. It's UNSECURED!! Like I said, when SN taps into their bank revolver the covenants you fear and reserves will come into play but until then they have absolutely no relevance today.
As far as CC's…it's 2Q 2016 that you'll want to clue in. SN is hedged on roughly 60% of their overall production thru 2015. As far as their "ability to borrow"…there is $1.18BB in liquidity and no plans to take on debt. No debt is due until 2021. Again, if oil stays down here for years they all go down. SN will be around much longer than the majority of their peers. Please review the bond docs and recent corporate presentation. Not being combative but the speculation here with no review of either is rampant here. HK, FST, SM, GDP etc are great candidates for Armageddon predictions.
liam….you make a good point. It was previously mentioned that SN's fate is in the hands of their bankers and not management. SN owes nothing to the banks. It is in management hands and their liquidity not only will allow them to potentially pick up any carnage along the way but also make them much more attractive for merger (not necessarily a good thing at these prices). If memory serves this family has been in this game since the early 70's and there are several Ivy leaguers in management (not that they can stop any drop in oil). Point being….this is a savvy management team…smart enough to agree to an upsizing of $300mm of 6.125 debt in August. What shale producer wouldn't kill for the opportunity to float 6.125% debt right now! They don't need to zap liquidity on a share buy back but your distressed asset acquisition thought may be highly likely.
Pleiades…I have done my DD and that''s EXACTLY why I recently posted specifically about the LACK of restrictive covenants on SN's debt. SN has covenants on the bank line (which has a $0.00 balance) at 4x. They are at 1.8x. There are no covenants on the bond debt nor is there an Am schedule (..."its senior notes, which carry no maintenance covenants, beginning to mature in 2021). You also express a debt ratio of "over 3x" while SN expressed today "SN's net debt to pro forma LTM EBITDA was 1.8x". Your allegations and fears of "called loans" due to restatements of reserves are baseless and irresponsible. SN has no debt currently callable nor any debt outstanding that is benchmarked to reserves. Again…a simple read of todays release reveal this. "...$650 million of undrawn, approved revolving credit borrowing base". Only at such time that SN taps into this line will reserves come into play.
I agree with your caveats on investing E&P companies wholeheartedly…they are not for the weak of stomach or faint of heart. I also agree with your assessment of bond prices being a great benchmark. Many peers of SN are trading at .50-.60 on the dollar with yields of 12-15%. SN's 7.75 hovers around .90 further evidencing their highly liquid balance sheet. If oil goes to $40 for 5 years it won't matter for any of them.
We have seen great examples today of the grossly misunderstood/misrepresented SN balance sheet. dr. breckenridge fears a bankruptcy "any day now". The good doc should understand what forces a bankruptcy and know well enough by looking at the financials that there is no debt coming due in the next 6 years (no amortization along the way either). There is no catalyst for a bankruptcy in the near term.
Not sure which poster suggested SN has debt at "extremely high interest rates". Energy yields are now in the double digits. No buyers for energy high yield debt so expect the yields to go much higher. There are no buyers now for any shale debt issuance. Check GDP's "putable" $100mm issue in 2017. The bank debt at GDP will not allow putable preferred to prime their loans (restrictive covenants that I mentioned previously that do exist for SN's debt). SN debt is at 7.75% and 6.125%. Very low interest expense for the space.
Share buybacks are not likely. SN should keep their "powder" dry at all cost. No telling how long prices remain low. Survival while others fail is key. Shareholders should rather see the cash used for firesale acquisitions should they come along. Oil goes back to $90-100 and the buyback makes them look like a Harold Hamm fool!
s52…how many deals have we seen over the years that use the old metric to value companies…"$100,000 per producing barrel"?? Permian deals have been done at $140,000+ in the last couple of years. Your $37,504 seems to further suggest the disconnect here (especially given the huge cash position and liquidity). I would like to see how your math applies to the peers I have mentioned if your time allows.
It was $18 less than 2 weeks and oil was $6 higher. The $6 slide wiped out $400mm in market cap. Seems excessive to say the least. Hedge funds have a mandate coming into year end…get out of all shale drillers at whatever cost. If oil continues to slide SN could take a downdraft to $5 or 6 but looking longer term it's obvious that many will fail in a prolonged low oil environment long before SN. Maybe they have the balance sheet to pick up some pieces of failed peers. If that's the case SN will be a big winner if oil turns thereafter. SN can weather the storm better than most but the question is can shareholders like you? It's been a terrible downturn for sure. Good luck to you.