SEA 5.38% 49.0¢ sundance energy australia limited

Originally posted by tt2000Interesting to note "The post-tax...

  1. 6,420 Posts.
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    TT,

    I've actually quoted that text on another forum and used that to illustrate how much "value" exists in acreage outside of PDP reserves. We don't have too many spruikers here (now) anymore as compared to other forums. Most every (O&G related) forum is dominated by posters who do not grasp the capital requirements to develop acreage.

    Perhaps Eric has become a realist, if only because of market forces and having to take a large impairment. The buyers are the ones who have to invest the capital to develop the Probable and Possible reserves not the sellers. They take the risk.

    The other aspect often forgotten is PDP NPV DOES NOT INCLUDE the corporate costs. It's an asset value. While PDP does not require capital to be invested it does require normal working capital to pay the G&A and any interest costs. When oil price was only going up companies were paying up for PDP (close to and sometime above PDP). But the stuff doesn't produce itself for free. When oil price goes down or is very uncertain (and risk goes up) that asset is depreciating.... Common sense dictates buyers want to purchase assets at a discount. Common sense dictates that lenders only what to lend on a fraction of the discounted asset value (which is the new carrying value on the books of the buyer).

    So now you have an illustrative situation where a $40M PDP asset is sold for $30M (a 25% discount) and a bank lending say 66$ of PDP (so $20M) and you the buyer need $10M equity. Out of the gate your new business has $2 Debt for every $1 Equity (not bad in boom times) which would already be considered a weak balance sheet ....


    SEA has taken Dimmit out of their Reserves, production and cash flow forecasts. It's as "non-core" as it gets and on the blocks for whatever it fetches. That Dimmit has motivated sellers of acreage isn't going to help us get a better than market price IMO.

    If I was Eric (and I'm not), I would simply answer X with the general response that SEA will update the market when any change to prior guidance occurs. I'm sure that response would get the full negative treatment.
 
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