Saratoga Resources Inc. (ticker: SARA) is an oil and gas exploration and production company concentrating on abundant, low-risk drilling opportunities located in the transition zone off the coast of Louisiana. In some places, including the company’s Grand Bay field, approximately 64 stacked pay sands exist with wells that have been producing for over 50 years.
Saratoga announced its Q3’13 results on November 13, 2013. Oil and gas revenue totaled $17.2 million, with oil accounting for $16.3 million, increases of 4.5% and 15%, respectively, in comparison to Q3’12 totals. EBITDAX fell to $6.7 million from $8.5 million in Q3’12. The company reported a net loss of $5.7 million ($0.19 per share) and operating loss of $3 million in Q3’13. The losses are attributed to a $6.7 million increase in operating costs, including $2.2 million in expenses associated with the loss of the lease in Little Bay and $1.1 million in barge removal and unusual drilling conditions. The company expects to collect a $1 million insurance policy on the barge removal. The Little Bay lease was successfully reacquired on November 15, 2013. While the property is not in SARA’s near-term drilling plans, it holds an estimated 48 MBO and 1.2 MMcfe for a total of 254 MBOE.
Cash on hand in Q3’13 is $9.6 million, down from $30.2 million in Q2’13. Working capital decreased to $(0.1) million from $18 million in Q2’13. CAPEX for the quarter was $16.4 million, and $1.7 is budgeted for the remainder of 2013. The budget was fully funded by operating cash flow and cash on hand.
SARA completed two development wells in Q3’13 and successfully recompleted six out of nine wells. Leases were awarded in the Breton Sound (857 acres) and the Gulf of Mexico (GoM) (19,184 acres), with the latter coming from a U.S. Bureau of Ocean Energy Management sale. SARA currently has 94 gross (93 net) wells in production across 10 fields and holds 51,890 gross/net acres with 60% held by production. In a conference call, the company said it was an excellent opportunity to acquire additional GoM properties.
The company drilled its first two horizontal wells in the Breton Sound 32 field. The Rocky well targeted the 5,800 sands and produced net IP rates of 508 BOEPD. The Zeke had net IP rates of 268 BOEPD. SARA said they are being particularly careful with pulling reserves from the wells in order to prevent reservoir damage.
Total Q3’13 production equaled 151 MBO and 187 Mcf for a total of 182 MBOE. Production for nine-months 2013 is 638 MBOE, a 21% decrease from 2012’s nine month total of 807 MBOE. Oil production, while up 9.2% in Q3’13, is down 4.7% for the nine month period. Natural gas in Q3’13 was down 66.3% and 45.3% for the nine month period.
The non-producing Vermilion 16 well was plugged and abandoned in the quarter. Additional production decreases stemmed from problems with flow lines in the Main Pass 46 Field and a shut-in at Main Pass 25 due to construction and Hurricane Karen. Natural gas production declined largely because of SARA’S increased emphasis on oil, which now consists of 95% of its revenue.
Operations for Q4’13 are expected to target building cash flow in 2014. The budget for 2014 CAPEX has not been finalized.
SARA’s future plans include low-risk completions and enhancement programs from its undeveloped and shut-in opportunities. An increased emphasis on field studies is a focal point of Q4’13, with hopes of expanding its horizontal program. SARA is seeking a development partner in its newly-acquired deeper opportunities in the GOM and employed a third-party firm to evaluate the potential. Its 100% working interest provides the company flexibility and SARA believes adding partners can deleverage its position. The proved reserves chart on the left was the result of an evaluation by Collarini Associates using SEC pricing with average benchmark prices of $94.71/Bbl oil, $2.76/ MMBtu gas.
SARA will move into its directional drilling program in 2014 and believes the successful drilling of Vermilion 153 can result in as much as 4 MBOEPD. Management also believes increased valuation knowledge on high angle and horizontal drilling will improve performance. SARA added there is “substantial” interest from working partners but they will carefully evaluate prospective companies before deciding to move forward on a joint venture.
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