Samson Oil & Gas Limited (NYSE, ASX: SSN) is an exploration and production company domiciled in Australia, but has all of its oil and gas assets in the United States. The Company’s executive management and technical staff are based in Denver, Colorado. Samson announced a new joint venture (JV) with privately-owned Slawson Exploration Company, Inc. an established Bakken operator, to advance its plan for full-field development.
Prior to the JV, Samson owned a 60% working interest in three sections along with a 30% working interest in seven producing wells (average 23% net revenue interest). Continental Resources (ticker: CLR) owns the other 40% working interest. As part of the JV, Samson sold half of its interest in the three northern sections of the field, or 345.6 net acres, to Slawson for $5.562 million in cash and other consideration, which values the acreage at $9,656 per acre. Along with the cash, Slawson will assume operatorship of North Stockyard and take assignment of the drilling contract for the rig that is currently working in the field. The infill drilling program calls for six new horizontal Bakken wells and seven wells in the first bench of the Three Forks formation.
At this time, Slawson is mobilizing the Frontier 24 rig to a pad drilling location at North Stockyard where it will spud the first of two horizontal wells targeting the middle Bakken.
Samson forecasts gross drilling and completion costs at $8.1 million per well ($2.0 million net to Samson). That cost is consistent with data reported by public companies, like Oasis Petroleum (ticker: OAS) who guided to well costs of $8.0 million towards the back half of this year. The Company estimates a gross End Ultimate Recovery (EUR) per well of 440 MBOE, which is also consistent with that reported by other operators in the play. Samson projects the per-well PV10 for both Bakken and Three Forks infill wells to be $810 thousand, using oil and natural gas prices of $82.00 per barrel and $6.48 per Mcf, respectively.
In early January 2013, the North Dakota Industrial Commission approved 160-acre spacing in the Bakken play, effectively quadrupling the number of potential well locations on existing acreage. Since then, Samson has been focused on increasing oil production from North Stockyard through expanded infill drilling. The JV with Slawson advances Samson’s objective by partnering with an established operator in the Bakken play who has the resources, expertise and relationships to drill and operate the infill wells.
The North Stockyard project is located in Williams County, North Dakota, in the heart of the Bakken play. In either close proximity and/or contiguous to North Stockyard are producing wells and acreage operated by other operators, including EOG (ticker: EOG), Kodiak Oil & Gas (ticker: KOG), Continental Resources (ticker: CLR), Hess (ticker: HES) and Statoil (former Brigham acreage) (ticker: STO).
We view the JV as a step in the right direction. Samson appears to have an interest in what most would consider the “sweet spot” of the Bakken play. Management has been diligent in securing control of the North Stockyard acreage from the previous operator and persistent in moving its infill drilling program forward. In our opinion, partnering with a known Bakken operator like Slawson is a wise move and we are optimistic that the infill drilling program will commence soon, as Samson has forecast oil production from the field to increase in the late third quarter into the fourth quarter of this year.
We estimate that the undiscounted market value of Samson’s net reserves from the JV drilling program to be approximately $0.55 per share, assuming full-field development. Other assumptions include net reserves per well of 132 MBOE (440 MBOE multiplied by Samson’s 30% working interest) valued at $31.76 per BOE, which is the average enterprise value-to-proved reserves valuation for four other public E&P companies operating in the Bakken (e.g., CLR, EOG, OAS and KOG) per EnerCom’s E&P database as of August 2, 2013. SSN closed on the NYSE at $0.52 on August 15, 2013.
Additional upside exists from an additional 24 gross infill wells in lower three benches of the Three Forks. This potential provides Samson with some near-term visibility beyond the initial infill drilling program.
To improve future visible growth potential, Samson has increased its leasehold in Williams County via the Rainbow Project, which includes an initial 52% working interest in 950 net acres with an option on another 1,250 net acres (44% working interest). The Company estimates the Rainbow Project holds potential for 16 infill wells, including eight in the middle Bakken and eight in the first bench of the Three Forks.
Important disclosures: The information provided herein is believed to be reliable; however, EnerCom, Inc. makes no representation or warranty as to its completeness or accuracy. EnerCom’s conclusions are based upon information gathered from sources deemed to be reliable. This note is not intended as an offer or solicitation for the purchase or sale of any security or financial instrument of any company mentioned in this note. This note was prepared for general circulation and does not provide investment recommendations specific to individual investors. All readers of the note must make their own investment decisions based upon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Investors should consider a company’s entire financial and operational structure in making any investment decisions. Past performance of any company discussed in this note should not be taken as an indication or guarantee of future results. EnerCom is a multi-disciplined management consulting services firm that regularly intends to seek business, or currently may be undertaking business, with companies covered on Oil & Gas 360®, and thereby seeks to receive compensation from these companies for its services. In addition, EnerCom, or its principals or employees, may have an economic interest in any of these companies. As a result, readers of EnerCom’s Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this note. The company or companies covered in this note did not review the note prior to publication. EnerCom, or its principals or employees, may have an economic interest in any of the companies covered in this report or on Oil & Gas 360®. As a result, readers of EnerCom’s reports or Oil & Gas 360® should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.