Samson Oil & Gas Limited (ticker: SSN) is an independent oil and gas company with dual listings on the Australian ASX and the NYSE. However all of the company’s assets and operations are based in the United States, with a current focus on the Bakken.
Year-End 2013 Results
On September 16, 2013 Samson reported a net loss of $11.7 million for the year ended June 30, 2013, compared to a net loss of $31.2 million for the year ended June 30, 2012. Much of the net loss in 2013 was due to non-cash write-offs of $7.4 million related to previously capitalized exploration expenditure. Poor completion results at the Spirit of America II well in the Hawk Springs Project in Goshen County, Wyoming led to the write-offs.
Oil and gas revenues in the fiscal year ended June 30, 2013 (FY 2013) decreased to $5.8 million from $8.4 million in the prior fiscal year (FY 2012). The decline was the result of lower oil production combined with a decrease in the average oil price realized. Oil production decreased to 61,640 barrels in FY 2013, down from 87,956 barrels in FY 2012. Natural gas production decreased in FY 2013 to 167,083 Mcf, down from 214,663 Mcf in FY 2012. The drop total production in FY 2013 was the result of normal expected declines from maturing oil fields and down time experienced in the North Stockyard project for workover operations.
Re-Positioned for the Upside: Investing at North Stockyard Field
Fiscal 2013 was a transition year for Samson as it turned its focus away from its exploration projects to development drilling. The company’s exploration projects have yet to generate commercially productive assets, so Samson has re-focused its attention lower-risk development drilling in the North Stockyard Field in Williams County, North Dakota.
The North Stockyard Field is located in the heart of the Bakken shale and is surrounded by producing wells run by successful Bakken operators including EOG (ticker: EOG), Kodiak Oil & Gas (ticker: KOG), Continental Resources (ticker: CLR), Hess (ticker: HES) and Statoil (former Brigham acreage) (ticker: STO).
To summarize the company’s progres, in June 2013, Samson announced the sale of 30,000 acres of largely undeveloped acreage in the Williston Basin, located in Roosevelt County, Montana for $13.533 million. Samson is reinvesting the net proceeds from that transaction into an infill drilling program at North Stockyard field, a producing asset. We view this strategic shift from exploration to lower-risk development drilling as a positive development. Flowback operations on the Sail and Anchor well began on September 14, 2013 and with average production at 1,375 BOPD. The field holds the potential for an additional 14 horizontal wells targeting the Bakken and Three Forks formations.
Then, on August 19, 2013, SSN finalized a joint venture (JV) with privately-owned Slawson Exploration Company, Inc. to advance its infill drilling program at North Stockyard. 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). 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. A complete review of Samson’s projects can be found in their operational advisory release.
More Capital for Development Drilling
The company also raised a total of $13 million from the sale and placement of equity shares in three separate transactions.
In March and April 2013, SSN raised net proceeds of $3.2 million in the U.S. through the sale of American Depositary Shares (ADSs) (represented by ordinary shares) and warrants to purchase ordinary shares via a registered direct offering.
SSN then conducted a rights offering which granted shareholders, including holders of ordinary shares and American Depositary Shares, the right to purchase one ordinary share and 4/10 of a warrant to purchase ordinary share for every three ordinary share, or ADS equivalent, owned, raising $2.5 million in net proceeds.
Finally, SSN conducted a shortfall placement of the shares not purchased by existing shareholders in the rights offering. The shortfall placement was conducted in the U.S. and Australia in August 2013 on the same terms as the rights offering, raising approximately $7.0 million.
The company is currently evaluating other options to raise capital, including a secured debt facility.
We are encouraged by Samson’s move to rationalize its portfolio of non-core assets and build near-term value by drilling in its de-risked North Stockyard field. Bringing on an experienced Bakken operator like Slawson should reduce operational risk and bring the new wells online in a disciplined manner. Samson has six locations ready for infill drilling on 160 acre spacing in the North Stockyard field and a total of 14 horizontal Bakken and Three Forks locations providing near-term operational upside that will likely lead to increases in production and cash flow that can be reinvested in Samson’s other projects.
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